LONDON (Reuters – Should you sell in May? But they didn’t disappear as the stock market old adage says. Instead, traders bought the dip aggressively, creating some of most extreme monthly swings in recent memory.

Inflation, China’s tightening policies, and aggressive central bankers all drove a large amount of selling during the first half. There was also a lot more buying in the second half. However, markets began to reduce their expectations for U.S. rate increases.

All the worries about rising prices have returned to the forefront. On Tuesday, crude oil rose above $123/barrel and Euro zone data revealed record 8.1% inflation in May.

This means that “there will still be some doubt in the market that has not seen the bottom”, stated Stuart Cole, Equiti Capital’s chief macro strategist.

Here’s a quick summary of the performance of major asset classes this month.

1. MONEY-MARKETS

They are close to where they began May, with a slight rise to 3.2% over the previous year, then a plunge to 6-week lows and then another increase on the final day.

These moves align with Fed rate rise expectations. In May, this implied that U.S. rates would reach 3.3%.

Weak economic data and fears about growth lowered that prediction to 2.9%. However, futures were pushed back over 3% by the Fed’s hawkish remarks and an oil surge.

Francois Savary is a wealth manager at Prime Partners. He said that invisibility on interest rates will continue to fuel volatility. The key issue is still “Where the terminal rates are.”

The European Central Bank bets soared even further. The rate rises of 175bps are now priced, down from 123bps in May. It was this because the policymakers had indicated an end to negative rates for September. (Graphic: cooling rate bets, https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwegwxvo/cooling%20rate%20%20bets.JPG)

2/ VSHAPED MONTH ON STOCK

At its low point on May 9, the MSCI’s benchmark for global stocks had lost nearly $5 trillion in value compared to its highest during the month. This was its lowest level in 18 months.

Since then, the index has risen 8% due to markets ignoring the Fed’s most aggressive tightening measures. Market capitalisation is now at $60 trillion.

U.S. technology, the stock sector most susceptible to swings in interest rates, plunged 15% during the initial 20 days of February before recovering to 12%.

Goldman Sachs (NYSE) stated that a sustained recovery depends on additional clarity about how quickly inflation slows from here and how monetary policy responds to it, as well as the consequences for the growth outlook.

U.S. junk corporate bonds were also affected by wild swings. The risk premiums required of investors shot up to 494 bps from 405 at May’s start. These are currently back at 419 bps. (Graphic: MSCI AC World Market Cap, https://fingfx.thomsonreuters.com/gfx/mkt/zdvxowjzlpx/MSCI%20AC%20World%20in%20May.PNG)

DANCE IN EURO 3

The euro was revived by a hawkish ECB pivot, which lifted it up to 4% above the five-year lows reached earlier in this month.

Despite the fact that negative interest rates in the eurozone are about to end, the market isn’t ready for investors to shout “peak dollar,” as the Fed doesn’t seem to be slowing down its tightening of policy.

As the European Union plans to reduce Russian oil imports by a third, the Euro could be again under threat from the recession. (Graphic: King dollar, https://fingfx.thomsonreuters.com/gfx/mkt/gdpzyejzyvw/King%20dollar.JPG)

4. CRYPTO-CRASH

The mid-May crash of TerraUSD (a stablecoin that lost its $1 dollar peg in May) caused market turmoil and triggered big drops in crypto assets.

However, this is not the case for stocks.

Three days after TerraUSD broke, Bitcoin fell to $25,401 on May 12. This was its lowest point since December 2020. This was the largest monthly drop in market capital for the biggest coin.

CoinMarketCap reported that the global market cap for all cryptos had dropped to $1.14 trillion by the time TerraUSD was defunct. Now, it stands at $1.3 trillion. That’s a decrease of around 25% in this month and 56% less than November’s peak close to $3 trillion.

According to Elliptic, TerraUSD holders and the linked token luna suffered losses in excess of $42 billion. (Graphic: Crypto v2, https://fingfx.thomsonreuters.com/gfx/mkt/znpneomddvl/Crypto%20chart%20v2.png)

5. OIL DASH

There was no yo yoing in oil markets this month, unlike other asset types. Oil futures saw a six-month streak of consecutive gains. This was the longest rising streak in over a decade and added to the problems of policymakers who are trying to curb inflation.

Brent reached $124 per barrel Tuesday after the European Union leaders agreed that Russia would reduce its oil imports by one year.

China has announced that it will lift its COVID-19 lockdown and allow Shanghai residents to move about freely starting Wednesday. This support helped prices even more. This will increase global energy demand just as the holiday season is picking up in the Northern Hemisphere. (Graphic: brent crude, https://fingfx.thomsonreuters.com/gfx/mkt/dwpkrnyryvm/brent%20crude.JPG)