May 2022 - The markets are roiled as crude oil continues to rise

MARKET
REVIEWS

May 2022 - As uncertainty continued to weigh on all the markets, volatility increased. Concerns about the prospect of a recession dominated sentiment in May. Monetary tightening by central banks, combined with geopolitical tensions and supply-chain bottlenecks, prompted investors to take a pessimistic view of future earnings. Even so, despite significant dips, the world’s markets ended the month almost unchanged. The price of crude oil continued to rise during the month, gaining 9.5% and returning to the levels seen early in March.

	Closing 31-05-2022	Variation vs 30-04-2022	Variation vs 31-12-2021
Interest rate in Canada (%)
Key rate	1.00	0.00	0.75
Commodities ($ US)
Oil (WTI)	$114.67	9.5%▲	52.2%▲
Gold	$1,838.70	-3.8%▼	1.8%▲
Currencies		CAD Variation	CAD Variation
EUR / CAD	0.74	-0.5%▼	5.9%▲
JPY / CAD	101.63	0.1%▲	11.2%▲
USD / CAD	0.79	1.1%▲	0.2%▲

Sources: Bank of Canada, Fundata, US Energy Information Administration.

As for the central banks, the U.S. Federal Reserve (Fed) raised its key interest rate at the start of the month in a bid to tame inflation. It was the Fed’s largest increase since the 2000s. Investors welcomed the minutes of the Fed meeting, which seemed to rule out more aggressive rate hikes for the time being. Europe took a different approach. European Central Bank President Christine Lagarde said the Bank was in no rush to withdraw its monetary stimulus because inflation in the euro zone was being fueled by rising energy prices and shortages rather than by demand. Meanwhile, the Bank of Canada raised its key rate again, from 1.0% to 1.5%.

Canadian Market 0.5%▲(MSCI Canada 31-05-22)
After bottoming in mid-May, the Canadian market rebounded and ended the month in slightly positive territory, returning 0.5%, as measured by the MSCI Canada Index. Amid rising oil prices, energy was once again the Canadian market’s best-performing sector. Financials and utilities also performed positively. Conversely, the health care and information technology sectors recorded the largest declines. The bond market experienced some respite during the month after a difficult start to the year, ending the month with neither gains nor losses.

American Market -1.3%▼ (MSCI USA 31-05-22 in CAD)
May was particularly volatile on the U.S. market. After losing more than 20% of its value since the start of the year and experiencing several weeks of consecutive losses in April and May, the market rebounded at the end of the month, recording its best week since November 2020. It ended May with a return of -0.2% in U.S. dollars, as measured by the MSCI USA Index. In Canadian dollars, the return was -1.3%, owing to the loonie’s strength against the greenback. As in Canada, energy and financials dominated, while consumer discretionary and consumer staples suffered the most.

European Market -0.1%▼ (MSCI Europe 31-05-22 in CAD)
As with the North American markets, the European market also had a difficult start to the month, followed by a slight rebound. It ended with a return of -0.1% in local currencies, as measured by the MSCI Europe Index. The currency effect had no impact on the return, which in Canadian dollars was also -0.1%. The European Union’s massive embargo on Russian oil boosted the securities of energy companies. The energy sector ended the month with the best performance, followed by financials. Conversely, real estate, consumer staples and health care were the weakest sectors and ended the month in negative territory.

Asian Market -0.4%▼ (MSCI Asia-Pacific 31-05-22 in CAD)
The Asian market was no exception. Despite a sharp decline at the beginning of the month, it ended with a return of 0.2% in local currencies, as measured by the MSCI All Countries Asia Pacific Index. Our currency’s appreciation against the Asian currencies reduced the return to -0.4% for Canadian investors. In contrast to the Western markets, all sectors recorded a loss in May, with the exception of information technology and industrials.

Emerging Markets -0.6%▼ (MSCI Emerging Markets 31-05-22 in CAD)
China’s impact was again felt in emerging markets. After several weeks of severe restrictions in the Shanghai area, the prospect of an imminent reopening helped the markets rebound. The return in local currencies was -0.2%, as measured by the MSCI Emerging Markets Index. Once again, exchange rate fluctuations were not favourable, reducing the return to -0.6% in Canadian dollars. China, Taiwan and Hong Kong were among the regions that contributed positively to the return for the month. The information technology sector was the main contributor, followed by the energy sector. Financials and communication services were the main detractors.