Market Update - June 2025

Global stock markets enjoyed a strong rally in June. The S&P 500 increased +5% in local currency terms to hit all-time highs. The technology tilted index (NASDAQ) climbed +6.3%. A weaker USD resulted in the S&P 500 returning 2.7% in NZD terms. Bonds also posted gains as the US 10-year interest rate ended the month -0.17% lower.

There was a brief shift in sentiment mid-month due to the Israel-Iran conflict and concerns about its escalation. However, even with US involvement, the conflict ended quickly, and markets responded positively.

US economy

US economic data presented a mixed picture. CPI inflation continued to decrease while business and consumer survey data indicated some weaknesses in the economy. However, the US' unemployment rate remained relatively stable.

The Federal Reserve (Fed) decided to leave interest rates unchanged, in line with the market's expectations. Additionally, the Fed maintained their forecast to implement two additional -0.25% rate cuts by the end of this year. However, the Chairman of the Federal Reserve, Jerome Powell, took a more cautious tone during his press conferences, indicating that the Fed was content to observe the impact of tariff-related inflation before making further adjustments.

Despite Powell's cautious stance, other members of the Fed expressed their willingness to lower rates further if CPI inflation continued to trend downward. In addition, comments from President Trump regarding the appointment of a new 'pro-growth' Fed Chair also helped drive interest rates lower. These comments, along with the announcement of various trade deals, helped deliver tailwinds for stocks and bonds late in the month.

Australian economy

Data out of Australia indicated a deceleration in economic activity as both GDP and CPI inflation fell short of estimates. However, the unemployment rate remained steady at 4.1%, and there was significant growth in the number of full-time positions added. In addition, the decrease in headline inflation to 2.1% gives the market confidence that the Reserve Bank of Australia (RBA) can proceed with their expected rate cuts. The market is currently anticipating an 80% probability of a -0.25% rate reduction in July.

NZ economy

New Zealand's economy continued to demonstrate minimal growth with survey data indicating ongoing weakness. GDP showed a slight +0.8% increase for the first quarter, but this small growth follows a long period of stagnant or negative growth. Currently, interest rate markets are factoring in only a 16% probability of a cut in the Official Cash Rate (OCR) by the Reserve Bank of New Zealand (RBNZ) in July, with most economists anticipating that the RBNZ will opt to pause and reassess the situation. However, the market is estimating that the RBNZ will need to implement further cuts later on, projecting at least one more -0.25% reduction by December and a significant likelihood of an additional cut early next year.

New Zealand term interest rates reflected anticipated future RBNZ rate cuts and aligned with global trends. The 2-year and 5-year rates decreased -0.11%. The New Zealand dollar increased +2.23% due to persistent USD weakness.

Looking ahead

Global markets are closely monitoring geopolitical risks and the progress of the "Big Beautiful Bill" in the United States. Additionally, US employment data will be pivotal in determining the potential for further interest rate cuts later this year.