Market Key Points
- Ongoing tariff policy uncertainty and geopolitical tensions in the Middle East have had minimal negative effects on risk assets.
- US equity markets outperformed again in June, supported by the growing chances of interest rate cuts and the avoidance of a recession.
- Hard macroeconomic signals remained resilient in June, with investors watching closely how US policy changes will interact.
Australian equities
The S&P/ASX 200 Accumulation Index continued its rally in June, rising 1.4% and closing the 2025 financial year up 13.8%. Markets remained resilient despite global uncertainty stemming from war tensions, ongoing tariff disputes, and potential impacts of President Trump’s “Big Beautiful Bill”.
Sector performance was mixed, with Energy (+9.0%) leading gains on the back of surging oil prices driven by Middle East tensions. Financials (+4.3%) and Communications (+1.6%) also performed strongly, while defensive sectors lagged—Materials (-3.1%), Consumer Staples (-2.3%), Health Care (-1.1%), and Utilities (-0.2%) all posted negative returns.
Among individual stocks, ZIP Co Limited (ZIP) was the standout performer, soaring 54.7% after a strong trading update and upgraded FY25 guidance. Uranium producers Paladin Energy (PDN) and Deep Yellow (DYL) also surged 29.3% and 24.2%, respectively, amid a rally in uranium prices. Conversely, IDP Education (IEL) was the biggest loser, plunging 53.0% following a disappointing trading update as immigration policy uncertainty continued to weigh on the student placement market.
Economic data reflected slowing momentum, with March quarter GDP growing 0.2%, down from 0.6% in the previous quarter and below expectations of 0.4%. Annual growth remained weak at 1.3%, missing forecasts of 1.5%, as public spending recorded its largest drag since 2017. Household spending rose slightly, with gains in essentials offset by declines in discretionary items.
Inflation eased, with CPI rising 2.1% in May—the lowest rate since October 2024 and within the RBA’s 2–3% target range. Meanwhile, unemployment held steady at 4.1%, unchanged for three months and in line with expectations.
Global Equities
Global equities continued to rise in June, with Developed Markets gaining 2.5% (MSCI World Ex-Australia Index, AUD), supported by improved sentiment following a ceasefire agreement between Israel and Iran. US equities outperformed, with the S&P 500 Index up 5.0%, closing at record highs on optimism around easing geopolitical tensions and expectations of future Federal Reserve rate cuts. Growth stocks (+4.4%) led the way, outperforming Value (+3.1%), while Quality (+3.3%) and Momentum (+2.8%) factors also posted strong gains. Global small caps underperformed, returning 2.8%.
European markets were relatively stable after strong gains in May, underperforming the broader market as investors awaited developments in trade talks ahead of President Trump’s tariff deadline. Germany’s DAX Index fell 0.4%, while the UK’s FTSE 100 slipped 0.1%. The US Federal Reserve kept rates unchanged at 4.25–4.50% for the fourth consecutive meeting, maintaining a cautious stance amid uncertainty around new policies on tariffs, immigration, and taxation.
Inflation edged higher, with annual CPI rising to 2.4% in May from 2.3%, below expectations of 2.5%, while retail sales fell 0.9%, exceeding the forecast decline of 0.7%. ISM manufacturing and services PMIs both dropped below 50, signaling contraction in activity.
Commodities posted broad gains, with the S&P Goldman Sachs Commodity Index up 3.5%. Oil surged 7.1% on Middle East tensions, while gold fell 1.4%, though it remains up 44.7% year-on-year. Iron ore prices declined 3.7% in June and are down 13.2% over the past 12 months amid supply increases and uncertainty around China’s growth outlook.
Emerging Market Equities
Emerging market equities outperformed developed markets in June, gaining 4.1% (MSCI Emerging Markets Index, AUD). China rallied as trade concerns eased, with the CSI 300 up 2.5%. Economic data from China was mixed: retail sales rose 6.4% year-on-year in May, beating expectations and marking the strongest growth since December 2023, while industrial production grew 5.8%, slightly down from 6.1% in April. Inflation continued to decline, falling 0.1% year-on-year for the fourth consecutive month, reflecting ongoing trade risks and weak domestic demand.
Emerging markets were further supported by a weaker US dollar amid trade uncertainty and concerns over the growing US deficit linked to President Trump’s “Big Beautiful Bill.” The US Dollar Index fell 7.0% over the past three months, with USD/AUD down 5.0%, USD/EUR down 8.1%, and USD/JPY down 3.8%. Elsewhere in Asia, Japan’s Nikkei 225 surged 6.6%, its best monthly performance since February 2024, driven by strong gains in semiconductor and export-focused stocks following the rally in US technology shares.
Fixed Income
Global financial markets were highly volatile in June, driven by escalating geopolitical tensions, ongoing trade negotiations, and mixed macroeconomic signals. While falling inflation and resilient labor markets in the US and Europe supported investor confidence, uncertainty persists around the future path of interest rates, particularly those of the Federal Reserve. The Fed maintained its “wait and see” stance, leaving rates unchanged for the fourth consecutive meeting as policymakers assess the full impact of President Trump’s “Big Beautiful Bill,” which could add $3–5 trillion to US federal debt over the next decade. U.S. 10-year Treasury yields fell 17 basis points to 4.23% by month-end.
In Europe, yields were mixed. The European Central Bank cut rates again in June, signaling its easing cycle is nearing completion. UK 10-year Gilt yields rose 17 basis points to 4.49%, while French yields climbed 10 basis points to 3.27%. Germany saw only a modest increase, with Bund yields up less than 2 basis points to 2.53%. In Japan, the Bank of Japan held rates at 0.50%, the highest since 2008, as inflation eased to 3.5%. Japanese 10-year yields fell 8 basis points to 1.43%, reversing part of May’s sharp rise.
Domestically, the RBA’s 25-basis point cut in May brought borrowing costs to their lowest level in two years, with markets expecting three more cuts to reduce the cash rate to 3.10% by year-end. The RBA noted inflation risks are more balanced but remains ready to act if global volatility impacts domestic growth or inflation. Australian bond yields declined in June, with the 10-year yield falling back to 4.16%, reversing May’s increase.
Property and Infrastructure
The S&P/ASX 200 A-REIT Accumulation Index continued its upward trend, rising 1.8% in June and increasing its 12-month gain to 14.0%. Global real estate equities underperformed, increasing by 0.4% as indicated by the FTSE EPRA/NAREIT Developed Ex Australia Index (AUD Hedged), and global infrastructure gained 0.9%, measured by the S&P Global Infrastructure TR Index (AUD Hedged).
The Australian residential property market continues to grow, with the Cotality (formerly CoreLogic) home value index, which covers the eight major capital cities, increasing by 0.6% in June. Since the RBA started easing interest rates in February, prices have now risen by 2.3%. All major capital cities recorded similar gains, with Sydney up 0.6%, Melbourne up 0.5%, while Perth led the gains with an increase of 0.8%.
This article contains information first published by Lonsec. Voted Australia’s #1 Research House for 2019.
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