The Month Ahead
July 2025
June began with caution and ended with strength. Global equity markets rallied hard in the final week. buoyed by easing geopolitical tensions and optimism around trade negotiations. The S&P 500 Index and Nasdaq 100 Index (as at the time of writing to 27 June 2025) rose 4.5% and 5.6% respectively, while Japan’s Nikkei 225 Index surged 5.9%. European markets were mixed, with the EuroStoxx 50 Index down 0.7%, but the UK’s FTSE 100 Index edging up 0.5%, touching a record high mid-month. In local markets the NZX 50 Index gained 1.3%, and Australia’s ASX 200 Index rose 1.1%, also reaching a new high.
Bond markets were more active. US 10-year government bond yields fell 12 basis points, to 4.29%, as investors sought safety amid geopolitical uncertainty and responded to softer inflation data. When bond yields fall, their prices go up.
Helping to lift sentiment was news that the US and China confirmed details of a trade framework. This gave markets a boost, reducing near-term uncertainty and supporting both equities and bonds.
Elsewhere, commodities prices were volatile. Oil prices spiked mid-month due to Middle East tensions, while gold rose as investors looked for safe-haven assets. Both retreated towards month-end following news of a ceasefire between Israel and Iran. These moves reflect broader uncertainty and a cautious investor mood.
Geopolitics: Ceasefire brings relief, but risks remain
Geopolitical risks remain front and centre. The conflict between Israel and Iran escalated mid-June, with the US joining Israel in coordinated strikes on Iranian nuclear sites. Iran responded with missile attacks, but a ceasefire was brokered late in the month, easing tensions and helping lift market sentiment.
Looking ahead, several possible outcomes could shape market sentiment. If tensions flare again, we could see renewed pressure on energy prices and a risk-off move in equities. On the other hand, a sustained ceasefire could support risk assets and ease inflation concerns. Heading into July, investors will be watching closely for signs of stability or renewed conflict.
Meanwhile, the war in Ukraine continues, with peace talks stalling. While not dominating headlines, the conflict still influences investor sentiment. Any progress – or deterioration – could have ripple effects across global markets, particularly in Europe.
Tariff deadline approaching
The 90-day pause on tariffs is set to expire on 9 July, with only a limited number of trade deals or frameworks announced so far. We anticipate a flurry of activity in the lead-up to the deadline, with tariff-related developments likely to dominate headlines over the next fortnight. Markets reacted sharply to the initial announcement in April, and so significant risks remain. As such, a pick-up in volatility should be expected.
Central banks walking a tightrope
The US Federal Reserve (Fed) held interest rates steady at its June meeting, citing uncertainty around the economic impact of tariffs and geopolitical tensions. Chair Jerome Powell reiterated a cautious stance, suggesting the Fed is in ‘wait-and-see’ mode for now. Recent inflation data showed stability, with the Fed’s preferred measure of inflation holding steady, while headline CPI (consumer prices) and PPI (producer prices) numbers showed weakness. The inflation impact of tariffs isn’t reflecting in the numbers yet and markets are beginning to price in expectations of a July rate cut.
Central banks in Canada and Europe also meet in July. At this stage, markets aren’t expecting any major changes, especially in Europe. Central banks are walking a tightrope – balancing inflation risks with signs of slowing growth. Their decisions will be key to shaping market direction in the second half of the year.
Local focus: GDP and July’s RBNZ meeting
New Zealand’s economy grew 0.8% in the first quarter of 2025, slightly above expectations and well ahead of the Reserve Bank of New Zealand’s (RBNZ) forecast of 0.4%. This will be a key input for its rate-setting committee, which meets in early July. With inflation still within target and the labour market softening slightly, the RBNZ may lean toward keeping rates steady, though a cut isn’t off the table.
In Australia, the Reserve Bank of Australia (RBA) also meets early July. Economic data has been mixed, with inflation moderating but consumer confidence still fragile. The RBA’s recent rate cut reflects its cautious approach, and markets will be watching for any signs of further action.
Our investment strategy
Our investment strategy remains unchanged – we continue to hold an overweight position in US 10-year government bonds. This reflects our view that economic growth will likely slow due to prolonged trade uncertainty and geopolitical risks. While inflation remains a concern, we believe the growth impact will be more significant, prompting markets to price in future rate cuts.
This environment supports longer-dated bonds, which tend to perform well when interest rates fall. We remain focused on managing risk and maintaining a diversified portfolio, ready to adjust as conditions evolve.
The Month Ahead July 2025 summary
Transcript - The Month Ahead July 2025 summary
[Note: Text on screen that’s similar to what’s being said is not described in this transcript]
[Text on screen: The Month Ahead July 2025, Mathew Young, Deputy Chief Investment Officer]
Mat: Hi, I’m Mat from ANZ Investments
How have financial markets been performing of late?
Financial markets have experienced a volatile few weeks, largely due to the ongoing conflict between Israel and Iran. One of the biggest movers was the price of oil, which rose by as much as 10% and is approaching its highest level of the year.
What are the broader implications of the war for financial markets?
While it's still early days, a prolonged conflict could have far-reaching consequences. The most immediate impact has come from higher oil prices, which pose a dual threat: this could fuel inflation while simultaneously dampening global growth.
This combination raises the risk of stagflation – a scenario marked by stagnant growth and rising prices. This historically has been negative for most asset classes.
How are central banks responding to the geopolitical unrest?
So far, most central banks are adopting a wait-and-see approach to interest rate decisions. However, recent commentary suggests that policymakers are increasingly alert to the potential economic fallout from a prolonged conflict.
At its June meeting, the Fed held rates steady, citing persistent inflation and the early effects of new tariffs. Chair Powell noted that while Middle East tensions have pushed oil prices higher, the US economy is more resilient to the energy shocks than in the past.
Aside from geopolitics, what else are you monitoring?
US economic data remains front and centre. There are emerging signs of a cooling labour market, with a gradual uptick in both initial and continuing unemployment claims. Whilst the slowdown is modest, a clear trend appears to be forming.
Closer to home, the Reserve Bank of New Zealand is set to meet in July. The likelihood of another rate cut has fallen, especially after one committee member voted to hold rates steady in June.
Regardless of whether the OCR is cut again, the RBNZ is expected to maintain an easing bias, given the lack of strong evidence pointing to a sustained economic recovery.
Thank you for tuning in to the Month Ahead for July.
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This information is issued by ANZ Bank New Zealand Limited (ANZ). The information is current as at 27 June 2025, and is subject to change.
This document is for information purposes only and is not to be construed as advice. Although all the information in this document is obtained in good faith from sources believed to be reliable, no representation of warranty, express or implied is made as to its accuracy, completeness or suitability for your intended use. To the extent permitted by law, ANZ does not accept any responsibility or liability for any direct or indirect loss or damage arising from your use of this information.
Past performance is not indicative of future performance. The actual performance any given investor realises will depend on many things, is not guaranteed and may be negative as well as positive.