As Jeremy Hunt signalled his comfort with the UK entering a recession if this would help stifle inflation, our European neighbours Germany, did in fact enter a recession, as according to government figures their economy contracted 0.3% between January and March. This followed a 0.5% contraction in the final quarter of 2022 and has perhaps driven the plummeting economic sentiment in the country, with the ZEW index, which is a leading indicator for the German economy falling into negative territory for the first time in 2023.
The main news in May for the US was the back-and-forth discussion on raising the US Federal Reserve debt ceiling. Following the usual theatrical script, a deal was struck at the eleventh hour, with the limit suspended until 1 January 2025.
Importantly for President Biden, this will fall after the next election. There have been concessions from both sides and the spending cut is relatively modest in real terms, resulting in less economic impact than anticipated which was well received by markets.
With chipmaker Nvidia joining the $1tn club, there was a lot of commentary centred on Generative AI appearing to be the real deal and arguably the most important technology since the internet, or the cloud.
Generative AI promises to unleash new kinds of productivity tools but also threatens to shake up jobs in industries such as media and education, and there are many concerned with its application. Perhaps linked to this, the Nasdaq climbed 6% in May, while the S&P 500 was largely unchanged.
Written and prepared for Crowe Financial Planning UK Limited by John Moore (Senior Investment Manager at Brewin Dolphin)