The Month Ahead

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.

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.

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.

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.

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 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.