May 2022 markets & commodities review

The ASX 200 lost 3% in May, including Tuesday’s 1% drop and yet Wall Street’s major market measures saw much smaller losses, even though it and its nervy traders were the source of much of the month’s volatility.

The ASX 200 ended May on 7,211 after ending April on 7,435.

That included touching a low of 6,914 on May 12 as Wall Street fell sharply and saw the S&P 500 flirt with a bear market (a loss of 20% from its previous high on May 20) and the Nasdaq fall deeper into the lair of the bear.

The drivers for the losses were easy to spot – fears about rising inflation (especially oil), interest rates and the continuing fallout from the Russian invasion of Ukraine.

Wall Street had sorted itself out and accepted that the US Federal Reserve would continue its hawkish monetary policy which saw a 0.50% rise in rates at the last meeting in early May.

But nervousness remains as we saw with Wall Street battling through see-saw movements Tuesday as investors closed out a rough month’s trading.

The Dow fell 222.84 points, or 0.7%, to close at 32,990.12. The S&P 500 dipped 0.6% to 4,132.15. The Nasdaq eased 0.4% to 12,081.39. The technology-heavy index was up 0.5% at its highs and down nearly 1.6% at its lows.

So by the close for the month the Dow and the S&P 500 finished the month little changed while the Nasdaq lost about 2.1%.

That was considerably better than the 3% to 6% losses earlier in the month in the wake of disappointing quarterly results from the likes of giant retailers, Walmart and especially Target. Walmart shares lost more than 11% in a day, Target shares slumped by more than quarter on the day of release of its result.

The month’s improvement flowed from last week’s strong rebound (and gains the Thursday and Friday of the week before),

Last week in fact the Dow and the S&P 500 saw their best weekly gains since November 2020.

The blue-chip average jumped 6.2% for the week, ending an eight-week losing streak. The S&P 500 gained 6.5%, and the Nasdaq was up 6.8% on the week, ending positive after seven continual weeks of losses.

But the Dow is still 10.7% below its record. The S&P 500 is down 14.2%, and the Nasdaq is off by a massive 25.5%.

And the ASX 200? Well its peak of 7,632 was hit last August and Tuesday’s close of 7,211 means the index remains 5.5% down from that high.

Compared to Wall Street’s losses, that’s not a bad effort.

After Wall Street’s end of month slide, the AX 200 looks starting June in the red by around 26 points, according to overnight futures trading.

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Among the key commodities, oil was again the big performer in May as it has been since the Russian invasion of Ukraine in late February.

Last month also saw fears about wheat and other food supplies (with bans from India on wheat exports and a ban on sugar exports as well) added to the uncertainty, boosted by worries about recession in China and the US and rising interest rates and a very strong dollar.

Given those cliffs of concern, its somewhat remarkable that oil again made solid gains – the stronger greenback should have had a more negative impact, but it merely capped the rise

But oil will track higher for a while longer with the partial EU ban on Russian oil agreed to and more signs of a concerted government effort to re-ignite demand and supply in the huge domestic manufacturing and retail markets in China.

That is seen as being bullish for oil if it sees China’s weakness start to reverse with demand for oil rising (even though China doesn’t like buying oil at elevated prices – joining hundreds of millions of motorists around the world who feel the same way about rising petrol prices.

US crude rose around 9.5% and Brent by around 12.5% in May to settle at $US114.67 and $US115.60 a barrel respectively on Tuesday, the final day of the month.

That gain though will continue upward pressures on inflation pressures heading towards the second half of the year.

EU consumer price inflation in May is estimated to have leapt to 8.1% from 7.4% in April and joining the US at multi-year highs.

Comex copper lost 2.8% on doubts about the Chinese economy during the lockdowns in Shanghai, Beijing and elsewhere. But that should start changing from today with the lockdowns in Shanghai starting to ease and the confirmation of a 33-point government stimulus plan for the economy.

Comex gold was down around 3.5% for its second monthly fall in a row, settling at $US1,848.40 an ounce on Tuesday afternoon. The stronger US dollar impacted gold which failed to capitalise on the volatility in sharemarkets.

Comex silver was also off for a second month, down more than 6%.

Chicago wheat sold off on the final day of May on suggestions that Russia and Turkey might co-operate to free up Black Sea grain movements.

The most-active wheat contract on the Chicago Board of Trade fell 65.5 US cents to $US10.92 a bushel, the 6.6% fall was the biggest daily decline since March 16. That left wheat up 3.1% for the month.

Iron ore prices should kick higher today after a small rise on Tuesday as the stimulus plan from China’s State Council was confirmed.

That saw the price of 62% Fe fines futures traded on the Singapore exchange end the month at $US133.60- up from $US131.80 last Friday. For the month though the price fell around 15%.

Trading on the final day of the months saw a different reaction in the thermal coal futures market.

There was an across the board rise on the Newcastle thermal coal Index run by US markets group ICE that saw the current June price end at $US427 a tonne. That was up $US12 a tonne from the end of May close of just over $US415 a tonne.

That was up $US27 a tonne, while the price of July coal jumped more than $US33 a tonne to $US410 a tonne.

Traders said the stimulus news from China saw prices perk up.