Global markets
Global equity markets began June strongly but delivered more varied performance as the month progressed. Improving geopolitical sentiment saw oil prices fall 25% from peak levels. However, ongoing uncertainty around the sustainability of the US–Iran ceasefire continued to cloud the outlook for inflation and interest rates. Hawkish signals from central banks further impacted investor confidence. Market leadership also rotated, with some technology sectors easing, while more traditional sectors came back into favour. The MSCI World Index eased 0.83% in US dollar terms during the month.
The global economy has nonetheless remained resilient. June flash Purchasing Managers' Indices showed manufacturing activity at a five-month high in the US, strengthening in Japan, while Europe showed tentative signs of recovery helped by lower energy costs.
Artificial intelligence remained one of the dominant investment themes, with demand across the AI ecosystem continuing to exceed expectations. However, a notable shift emerged during the month: investors became increasingly selective as valuations rose. Markets began to reward companies delivering strong earnings while becoming less forgiving where expectations had become particularly ambitious. Market leadership also broadened through June, with defensive sectors outperforming later in the month.
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United States markets
In the US, the S&P 500 and Nasdaq both reached record highs early in the month before easing to finish June down 1.1% and 2.8% respectively as the broader technology sector softened. In contrast, a rotation towards more traditional sectors saw the Dow Jones gain 2.5% over the month, closing at fresh highs. Despite the more mixed tone in June, the second quarter was very strong overall, with the S&P 500 and Nasdaq gaining 14.9% and 21.4% respectively - their best quarterly gains since 2020 - while the Dow Jones advanced 13%, its strongest quarterly performance since Q4 2022.
A key tension continued to define the outlook: the US economy remains remarkably resilient, but that very resilience is reducing the urgency for interest-rate cuts. US job creation rose by 172,000 in May, more than double market expectations of around 80,000 jobs. The result was even stronger beneath the surface, with payrolls for March and April revised higher by a combined 93,000 jobs. The unemployment rate held steady at 4.3%, remaining within the narrow range that has prevailed since mid-2025. Retail sales rose 0.9% in May, ahead of expectations, suggesting US consumers remain reasonably resilient despite higher fuel costs and elevated borrowing rates.
While supportive of economic growth and corporate earnings, this strength has prompted a shift in expectations, with markets increasingly debating the path of monetary policy, and whether or not inflation will prove persistent.
The Federal Reserve left interest rates unchanged at 3.5%-3.75%, as expected, but the accompanying projections struck a more hawkish tone than markets anticipated. Nine of the 18 officials now expect interest rates to finish 2026 above current levels, while prediction markets have materially increased the probability of a rate hike over the next 12-18 months.
New Fed Chair Kevin Warsh declined to provide his own interest-rate projection, arguing that dot plots are not particularly helpful in conducting policy. However, the broader message from the meeting was that officials are less confident inflation will continue falling without interruption. Policymakers also remain alert to the risk that renewed geopolitical tensions could quickly reverse that progress and place upward pressure on energy prices.
On the subject of inflation, US CPI rose 0.5% in May, taking annual inflation to 4.2%, the highest in three years. However, much of the increase was driven by energy, which rose 3.9% over the month and 23.5% year-on-year. Core inflation was more contained, rising just 0.2% monthly and 2.9% annually. Producer prices told a similar story. However, the Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) indexreinforced the central bank's grounds for caution. Headline PCE inflation rose to an annual rate of 4.1%, the highest since April 2023, while the core measure (which strips out food and energy) climbed to 3.4%, its highest reading since October 2023.
Despite elevated interest rates and persistent inflation, the US economy has continued to demonstrate impressive resilience. Consumer spending has moderated but remains positive, and consumer sentiment has improved (albeit from historic lows) as petrol prices eased. Meanwhile, corporate earnings have generally exceeded expectations, and businesses continue to invest heavily in long-term growth initiatives, particularly across artificial intelligence and digital infrastructure.
A defining event during the month was the listing of SpaceX, the largest IPO in history. The offering reinforced the extraordinary appetite for transformational growth companies and may also signal the reopening of the technology IPO market following a prolonged slowdown, paving the way for other large private technology companies (including OpenAI and Anthropic, the owners of ChatGPT and Claude respectively) to list over the coming year. The transaction also renewed debate around valuation discipline, as investors weighed the company’s significant long-term potential against an already ambitious valuation. The shares ended the month 25% above their US$135 IPO price.
European markets
European markets delivered a positive month, supported by easing energy prices and improving global risk sentiment. Lower oil prices were particularly beneficial given Europe’s sensitivity to energy costs, helping to reduce inflationary pressures and provide relief for both consumers and businesses. The STOXX50 closed up 4.6% for the month.
The European Central Bank raised interest rates for the first time since 2023 during June, reinforcing that while inflation has fallen from its peak, policymakers remain cautious about renewed price pressures from higher energy costs and geopolitical uncertainty. Time will tell whether policymakers went “too early” given recent developments around a peace agreement between the US and Iran. The broader economic backdrop remains mixed. Manufacturing activity, particularly in Germany, continues to face headwinds, while the services sector has remained comparatively resilient.
The Bank of England left interest rates unchanged as expected. Policymakers continue to face a difficult balancing act between inflation and growth. Britain's fiscal position also remains under scrutiny. Government borrowing reached £23.3 billion in May, almost a third higher than a year ago, while debt-servicing costs hit a record £11.7 billion for the month. Higher energy prices, elevated interest rates and sluggish growth are making the fiscal arithmetic increasingly difficult. The challenge for policymakers is that higher defence, healthcare and welfare spending leaves little room for error.
Asian markets
Asian markets delivered mixed results during June, influenced by global technology trends, currency movements and evolving geopolitical conditions. In equity markets, Japan was a standout, with the Nikkei jumping 5.6%, reaching new all-time highs, before giving up some gains towards the end of the month.
The Bank of Japan raised its policy rate by 0.25% to around 1%, taking borrowing costs to their highest level in 31 years. While the move was widely expected, it marks another important step in Japan's long journey away from the ultra-low interest rates and deflation that dominated much of the past three decades.
In China, economic data continued to point to a gradual but uneven recovery. Industrial production and exports remained relatively resilient, supported by targeted stimulus measures, although domestic demand remains subdued. Ongoing weakness in the property sector continues to weigh on consumer confidence and limits the pace of recovery. The Hang Seng fell 9.1% during the month.
Australian markets
Australian equities also delivered a positive month, with the S&P/ASX200 rising around 0.5%. Cyclical sectors benefited earlier in the month, while defensive sectors such as healthcare attracted renewed investor interest later in June.
The Reserve Bank of Australia left interest rates unchanged at 4.35% during June as policymakers continued to balance persistent inflation pressures against moderating economic growth. Investor sentiment was also supported by the passage of the Australian Government's significant tax reform package, which is expected to have longer-term implications for household incomes, property markets, and broader economic activity.
While the economy is slowing, it is not weakening materially. Labour market data reinforced this with Australia adding more than 40,000 jobs during May, while the unemployment rate edged down to 4.4%. That's still low by historical standards and suggests wage pressures are likely to remain firm.
Inflation remains a key challenge. While falling oil prices have helped ease headline pressures, underlying inflation (which rose to 3.6% in May) remains above the Reserve Bank of Australia’s 2-3% target range. As a result, the RBA has maintained a cautious stance, preferring to leave interest rates unchanged while assessing incoming data.
New Zealand markets
The NZX50G gained 2.9% during June. Investor sentiment improved as expectations for further interest rate increases eased somewhat following the ceasefire in the Middle East and the accompanying decline in oil prices. Lower energy prices have reduced inflation concerns, improving the outlook for household spending and supporting expectations that New Zealand's economic recovery can resume.
New Zealand’s economy continued to display a clear two-speed dynamic during June. Export-focused industries remain an important source of resilience, while domestically focused sectors continue to face more challenging conditions.
Strong global demand for agricultural products has supported record export levels, with meat, dairy and other primary industries performing well. Exports reached a second consecutive monthly record in May, climbing to $8.9 billion and taking annual exports to a record $82.7 billion. A weaker New Zealand dollar has further supported exporters, and the tourism sector, helping offset softness elsewhere in the economy.
There is, however, a sting in the tail. Imports rose 26% to $8.1 billion, largely reflecting the impact of higher fuel costs during the Middle East conflict. As a result, the monthly trade surplus narrowed to $800 million from $1.6 billion in April.
Domestic demand has remained subdued. Manufacturing has been relatively resilient, but consumer spending continues to be constrained by higher living costs and elevated interest rates, while the housing market and many service sectors have yet to experience a meaningful recovery.
Confidence has improved modestly, but conditions remain uneven. Forward indicators are looking more encouraging. New dwelling consents rose 11% in April and are now up 16% over the past year, with almost 39,100 new homes consented nationally.
This divergence leaves the Reserve Bank of New Zealand with a delicate balancing act. The RBNZ has consistently indicated it would look through temporary, supply-driven movements in oil prices when setting monetary policy, focusing instead on underlying inflation pressures and the medium-term outlook. As oil prices have retreated recently, market pricing for near term rate hikes has also eased, but the market is still pricing in hikes in the year ahead
From an investment perspective, a more stable interest-rate outlook is beginning to support the outlook for parts of the domestic market. While still early, there are some encouraging signs here.
Portfolio positioning
June reinforced the importance of maintaining a disciplined and selective investment approach. While artificial intelligence remains one of the most compelling long-term investment themes, markets are becoming increasingly discerning - rewarding companies delivering strong earnings while becoming less forgiving where expectations have run ahead of fundamentals.
After an exceptional rally over the past 18 months, markets are entering a phase where valuations leave less room for disappointment, increasing the importance of earnings delivery and careful stock selection.
This environment continues to favour active management and careful stock selection. Rather than simply following market momentum, our investment team remains focused on identifying high-quality businesses with sustainable competitive advantages, and attractive long-term growth prospects. As market leadership broadens beyond the largest technology companies, we believe maintaining a diversified portfolio and remaining disciplined around valuation will become increasingly important.
Looking ahead - market outlook
Developments in the Middle East will remain a key focus, particularly given the potential for energy market disruptions to influence inflation. In the United States, upcoming inflation, labour-market and growth data will continue to drive market sentiment, alongside policy decisions from the Federal Reserve.
The broader investment narrative remains intact. Artificial intelligence, digital infrastructure and the growing demand for computing power continue to underpin long-term earnings growth. However, markets are becoming increasingly selective as valuations rise. We expect periods of volatility and sector rotation to remain a feature of markets, reinforcing the importance of diversification, active management and maintaining a long-term investment perspective.