Market review May 2025

Crude oil price futures rose in May as worries about global demand subsided and against a backdrop of ongoing geopolitical worries. However, at the end of the month, eight countries from the Organization of the Petroleum Exporting Countries and its grouping of close allies decided to increase output over the coming months. European natural gas futures also moved slightly higher over the month.

UK equities

The FTSE 100 Index, a commonly used representative benchmark of the largest UK-listed stocks, added 3.8%. Meanwhile, the FTSE All Share Index added 4.1%, helped by share price strength in mid- and small-cap stocks. The Bank of England’s (BoE) Monetary Policy Committee (MPC) reduced the Bank Rate by 25 basis points (bps) to 4.25%. However, two members of the MPC voted to keep rates flat, while two voted for an even larger cut of 50 bps. The decision was made against a backdrop of global growth uncertainty. The UK’s annual inflation rate jumped to a greater-than-expected 3.5% in April, compared with 2.6% in March, on the back of the recent energy price-cap increase from the regulator. The Halifax House Price Index stepped up to 3.2% year-on-year (y/y) growth in April, compared with 2.6% expected and a rise of 2.9% y/y in March, against a backdrop of improved mortgage affordability. Unemployment stepped up to 4.5% having previously been at 4.4% for four months in succession. The preliminary UK manufacturing Purchase Managers’ Index (PMI) figure for May remained in contraction. However, the flash UK services sector PMI stepped out of contractionary territory, to reach 50.2 in May compared with 49.0 in April. (Note that a PMI figure under 50 indicates contraction.)

Tariff delays and reports of ongoing negotiations between the US and the EU, among others, buoyed sentiment.

US equities

The S&P 500 index added 5.2% in sterling terms and the growth-focused Nasdaq Composite Index rose 8.6%. Technology stocks were among the strongest performers as fears of tariff-related disruption waned and quarterly earnings reports were broadly well received. For the third meeting in succession, the Federal Reserve (Fed) kept its interest rate on hold at 4.25%-4.50% amid tariff uncertainty. Minutes from the Fed’s policy meeting, released later in the month, showed policymakers were comfortable with staying patient while awaiting further evidence of inflation and growth trends. The second estimate of annualised gross domestic product (GDP) growth for the first quarter of 2025 was adjusted 10 bps higher, from a contraction of 0.3% to a contraction of 0.2%. The closely watched non-farm payrolls for April saw 177K job additions, while March’s figure was revised lower. The main area of jobs growth was in the healthcare sector. The preliminary US manufacturing PMI was better than predicted, rising to 52.3 for May, from 50.2 in April, helped by new order growth. The flash services PMI improved to 52.3 in May from 50.8 in April.

Europe equities

The FTSE Developed Europe ex UK Index moved 3.6% higher in sterling terms. At the country level, the Netherlands, Germany and France advanced in local-currency terms. Europe’s equities benefitted from reports of progress in trade discussions with the US, with the DAX Index of major German stocks reaching new record highs in May. The European Central Bank (ECB) did not have a policy meeting in May, but at the end of the month, consensus expectations were for a further 25 bps rate cut at its next meeting in early June. The second estimate of eurozone first-quarter GDP growth was downgraded slightly, from 0.4% quarter-on-quarter (q/q) to 0.3 q/q. Meanwhile, the currency bloc’s aggregate unemployment rate remained at 6.3% in April. Preliminary figures for March’s eurozone manufacturing PMI remained in contraction but improved on the previous month. The services PMI figure, however, dipped into contraction in early figures for May, as new orders dropped and activity weakened.

Japan equities

Despite weakening mid-month, the yen finished broadly flat against the US dollar in May. The FTSE Japan Index moved 2.9% higher in sterling terms. The Bank of Japan (BoJ) kept rates on hold at 0.5% in May, against a backdrop of global economic growth worries. At the same time, the BoJ reduced its full-year forecasts for GDP growth from 1.0% to 0.5% and also pegged back its 2026 growth expectations. Meanwhile, annual inflation in April matched the 3.6% reached in March. Preliminary manufacturing PMI figures for May remained in contraction but improved slightly on the previous month. Meanwhile, the advance services PMI weakened on softening demand but remained in expansionary territory.

Emerging market equities

The FTSE Emerging Index was up 2.9% in sterling terms. Mexico, China and Korea gained ground, while Saudi Arabia declined in local terms. China’s industrial production grew 6.1% y/y in April, which was ahead of expectations, but behind March’s growth of 7.7%, as all key sectors slowed somewhat. Similarly, growth in exports slowed to 8.1% y/y in April from 12.4% y/y in March, as trade tariff worries dampened demand when compared with the strong comparative period that benefited from buying ahead of the US trade announcement in early April. Meanwhile, imports fell 0.2% y/y, however, this was an improvement on the decline of 4.3% y/y in the previous month. In Mexico, the benchmark interest rate was cut by 50 bps to 8.5%, against a backdrop of easing inflation and the recent return to modest economic growth in the first quarter. Yet, Mexico’s annual inflation stepped up slightly in April. In Brazil, the central bank added 50 bps to its key interest rate as it continued working to tame inflation. However, annual inflation edged up from 5.48% in March to 5.53% in April.

Asia Pacific equities

The FTSE Asia Pacific ex Japan Index rose 4.0% in sterling terms. At the country level, China, Korea, Taiwan, Australia and India moved higher in local currency terms. India’s annual inflation continued to slow, reaching 3.16% in April, from 3.34% in March, helped by a further softening of food price rises. This was the sixth successive month of slowing prices and may give the central bank leeway to cut interest rates further in the coming months. The Bank of Korea reduced its base rate from 2.75% to 2.5% amid faltering economic growth. Korea’s inflation rate stayed at 2.1% y/y in April, but the central bank nudged up its forecast for this year to 1.9%, from 1.8%. The Australian central bank cut its benchmark rate by 25 bps at its meeting in May, as inflation risks lessened.

Bonds

In fixed income markets, government bonds declined. In the US, the 10-year Treasury yield rose from 4.17% to 4.40% (and the price declined) in part because of Moody’s downgrade of the US sovereign credit rating and a weak US Treasury auction that underscored weaker sentiment about US debt levels.

UK 10-year gilts and 10-year Japanese Government Bond yields also rose (prices fell). In contrast, some government debt in Europe rose in value, with Spain and Italy among the markets to rise. Emerging market local currency government debt advanced over the month, helped in part by US dollar weakness. Credit outpaced government bonds. Investment grade bonds declined in sterling terms but were flat in local currency terms. High yield gained ground as investor risk appetite increased.

Property

The FTSE EPRA Nareit Developed Index, a measure of the performance of Real Estate Investment Trusts (REITs), moved 1.5% higher in sterling terms. Note that REITs tend to be sensitive to interest rate expectations. During the month to end-April – the latest period with available figures – the MSCI UK Monthly Property Index grew 0.6%. In the UK commercial property market, interest rate reductions have helped to improve sentiment. The office and industrial segments have generally seen improving demand, while retail has tended to lag in recent quarters.

*All index data are shown in total return sterling.
Source: FE Analytic