The Monthly Review
Signals rarely shout. Noise usually does. A read on the month beneath the headlines: the conversation we have been having internally.
An energy shock, still working through the system
An energy-driven inflation shock, still working through the system, set against a backdrop of resilient growth and a recovering appetite for risk.
May extended the recovery that began in April, with global equities posting broad gains even as the Middle East conflict stayed unresolved. The acute energy shock of March continued to fade, with Brent crude easing to around $92 a barrel (well below its March peak near $118). But the pullback came too late to stop inflation re-accelerating. US headline CPI rose from 3.3% in March to 3.8% in April, above the 3.7% the market expected, while South African headline inflation rose from 3.1% in March to 4.0% in April. Gold held around $4,540 an ounce and the dollar stayed soft, with the DXY near 99.
The standout move was local. On 28 May the South African Reserve Bank raised the repo rate by 25 basis points to 7.00%, lifting prime to 10.50%, on a 4–2 vote, the first of the central banks we track to tighten in response to the shock. The focus now is a tight cluster of decisions in mid-June: the ECB on 11 June, followed by the Bank of Japan, the Federal Reserve and the Bank of England between 16 and 18 June. The question we carry into June is whether the energy impulse hardens these into firmer, more hawkish holds, or whether disinflation reasserts itself once the oil spike fades.
A mixed month beneath the numbers
Measured in local currency, May was a mixed month, led by Japan and US technology. The Nikkei 225 surged 11.9%, the NASDAQ 8.4% and the S&P 500 5.3%, lifting the MSCI ACWI 5.2%. Europe advanced more modestly (EURO STOXX 50 +3.9%, Swiss Market +3.4%), while the FTSE 100 added just 0.7%. The laggards stood out: the Hang Seng (−1.7%) and the JSE All Share (−0.3%) were the only two indices to fall on the month. The same split runs through the year-to-date numbers: the Nikkei leads at 29.0%, while the JSE has returned just 0.7% in rand and the Hang Seng remains marginally negative. Over a full year the dispersion is wider still, with the Nikkei up 77.8% in yen against 42.0% for the NASDAQ and 14.2% for the Swiss Market.
Total return in local currency (each index in its own currency). From this edition, returns are reported in local currency rather than USD. This strips out currency-translation effects but breaks direct comparability with earlier USD figures. Source: Bloomberg, as at 31 May 2026.
Energy shock forces a hawkish turn
The defining macro story of recent months is how quickly an energy-driven inflation shock reversed the easing cycle markets expected coming into 2026. Earlier in the year several central banks were cutting or expected to; by May the picture had inverted. The SARB’s hike to 7.00% made South Africa the first of the banks we track to tighten, though Governor Kganyago framed the stance as less restrictive than in March. The Bank centred the decision on managing second-round effects rather than the first-round energy spike itself, raised its oil assumptions, and flagged renewed food-price pressure. That drew domestic criticism that the inflation is largely imported, a reminder of how blunt domestic policy is against a global supply shock.
Narrowing breadth beneath the highs
Beneath the headline gains, breadth has narrowed. US indices pushed back toward record territory in May on a small group of technology and AI names, even as participation thinned across the broader market. Mid-May commentary noted the unusual mix of the S&P 500 at record highs while a large share of constituents sat at fresh 52-week lows. The only comparable stretch since 1996, when record highs coincided with fewer than 60% of stocks above their 50- and 200-day moving averages, was the late-1998 to early-2000 window near the end of the dot-com bull market. Narrow leadership is not in itself a signal of a top, but it leaves the index leaning on a handful of mega-caps, and more exposed to a reversal in AI sentiment.
Signals beneath the noise
Signals rarely shout. Noise usually does.
The Long End
The clearest signal came from the long end of the US curve. The 30-year Treasury yield spiked to around 5.2% mid-month, its highest since 2007, as the energy-driven inflation shock and concern over the fiscal outlook pushed investors to demand more term premium. Yields then eased into month-end, with the 10-year back toward 4.45% and the 2-year near 4.0%, as oil softened and hopes of a Middle East de-escalation firmed. Notably, markets have now priced out rate cuts for the rest of 2026 and lean toward the next move being a hike, an awkward backdrop for new Fed Chair Kevin Warsh, confirmed with a mandate to bring rates down.
Credit
Listed credit stayed calm even as private credit drew scrutiny. US CDS narrowed from 81.0 to 73.2 and European CDS from 62.5 to 55.3, with public spreads back toward the lows that preceded the March widening. The contrast with private credit is the story: redemption pressure in semi-liquid US vehicles persisted, concentrated in software- and AI-linked lending rather than broad credit deterioration. Regulators weighed in during May. The Fed called the redemption risks “limited and manageable”, while the ECB’s Financial Stability Review flagged the potential for second-round losses to spill into leveraged loans, high-yield and equities. A reminder that stress can sit in the parts of the market that do not reprice daily.
Volatility
Volatility split in two. On an absolute basis the broad gauges were calmest, with 30-day volatility lowest for the MSCI ACWI (9.8) and the S&P 500 (10.2), while Japan and South Africa again stood out as the most volatile on both a 30- and 90-day basis (Nikkei 225 at 27.1 and 31.3; JSE All Share at 20.6 and 25.1). The clearer signal was the trend: 30-day volatility fell in every index from April, often sharply, with the S&P 500 dropping from 17.0 to 10.2 and the NASDAQ from 22.8 to 15.0. The 90-day measure, which still captures the March and April turbulence, was little changed to marginally higher, so the calming was concentrated in the near term. Even so, the residual volatility stayed concentrated in Japan and South Africa.
Hover any point to see its April position and 30-day move. Source: Bloomberg, end-April and end-May 2026.
The questions we are sitting with into June
The June central-bank cluster
Four major decisions land within a week. The signal we are watching is tone rather than the level: whether the energy impulse hardens the hold, or the door to cuts reopens.
The long end
Whether the term-premium repricing extends or unwinds. With cuts now priced out for 2026, the 30-year is the cleanest read on how durable the inflation and fiscal concerns prove.
Private credit
Listed credit is calm; the question is whether redemption pressure stays concentrated in software- and AI-linked lending, or broadens into the wider market.
Second-round effects in South Africa
The SARB hiked pre-emptively. Whether April’s 4.0% proves a fuel-driven spike or the start of broader pass-through is the question that justifies, or unwinds, that move.
Breadth and oil
Two fragilities sit behind the recovery. The equity rally still rests on a handful of mega-cap technology names, leaving the index exposed if AI sentiment turns. And while Brent has eased to around $92, the conflict that drove it higher is unresolved, so the relief on oil could reverse quickly.
Curiosity is a surprisingly effective risk management tool.