In contrast to last month’s recap, it’s been a bad month for the US dollar and a relatively better one for US stock markets. But the VIX, the fear gauge, is still quite elevated hovering just below 30. This highlights the exceptionally choppy nature of markets intraday during May, veering from outright sell-offs to more positive closes.

King dollar is no more, or at least for the time being. Other major central banks are playing catch up regarding policy normalisation with the Fed. This has seen sovereign bond spreads narrow quite dramatically, especially with Europe which has fuelled bullish momentum in the single currency. The ECB has even gone to “pre-committing” its first rate hikes in over decade, courtesy of a blogpost by its President, Christine Lagarde.

A slightly improved risk mood has also been helped by a possible pause by the Fed in its tightening cycle over the summer months. Investors are hoping a reassessment of more economic data after front-loading a few 50bp rate hikes will lead to less tightening further down the road. After dropping very close to bear market territory, the rebound in the S&P500, the US equity blue-chip index is relying on this going forward.

Major events of the month, in numbers

* 0.01% S&P500: This positive performance for the month comes in contrast to its lowest point on May 20. The benchmark index fell into bear market territory intraday, down more than 20% from its peak in November. But buyers pushed the close into the green and a near 9% rebound has ensued. Numerous company earnings have disappointed, though the bounce technical as well as fundamentally driven. We questioned whether BTD and other acronyms were still valid during the month. However, rallies are often seen in bear markets.

* -1.38% DXY: After surging to its highest level in two decades, it was perhaps only a matter of time before the overbought dollar suffered a setback. This month’s performance has given back some of the sizeable gains the greenback had been enjoying. Has yield/spread support now peaked for USD as growth potentially slows? The trend in data surprises suggests the US economy is weakening more quickly than expected. This means the rest of world may not be far behind.

*8.1% Euro area CPI: The last day of the month brought what many of the hawks on the ECB have been crwoing about. The latest eurozone CPI headline figure came in at another record high, reaching 8.1% in May, up from 7.4% in April and above expectations of 7.7%. In the space of just 18 months, this number has climbed from -0.3%. We haven’t seen the peak yet either, which points to the ECB having to act relatively aggressively in the third quarter, with the hawks wanting a 50bp rate hike. This would be the first rate increase since 2011.

* 0.70 AUD/USD: Perhaps one of the best ways of highlighting the turnaround in risk sentiment over the month has been the rebound in the aussie. The classic, commodity-based cyclical currency had been battered in April and plunged below major long-term support around 0.70. But we’ve seen a decent bounce since mid-May as commodities have again prospered and China eases some of its lockdown restrictions. The 200-day SMA looms above current prices at 0.7256.

* 205bps Two-year Germany-US spread: The more hawkish ECB may now be prepared to act and take real yields higher. This has seen a narrowing in the spread between eurozone bond yields and their equivalent in the US. This spread has come from a wide of nearly 260bps just a few months ago. This is undoubtedly a key crux of support for EUR/USD. Can it narrow further to below 200 bps which would push the currency major above 1.08, or is that a step too far?