Developed market (DM) equities maintained their positive momentum into June (MSCI World Index +4.3% MoM), closing in on a double-digit return at the 2025 halfway mark (+9.8% YTD). US large-cap tech returned to its role as market leader (Nasdaq 100 +6.3% MoM), bouncing back strongly in 2Q25 (+18% QoQ) to put the first quarter wobble behind them (-10% QoQ in 1Q25). European stocks faded towards the end of the 1H25 (Euro Stoxx 50 -1.1% MoM), losing some steam after the 1Q25 rally (+7.7% QoQ), which saw them dramatically outperform in a soft market (MSCI World -1.7% QoQ in 1Q25). Equity markets had a brief pullback mid-month as conflict between Israel and Iran escalated and the US got involved, launching strikes on Iranian nuclear sites. Ultimately, the conflict de-escalated, and equities resumed their gains into month-end.
Emerging market (EM) stocks also had a strong run in June (MSCI EM +6.1% MoM), driving them to a mid-teen return for the 1H25 (MSCI EM +15.5% YTD). Chinese stocks have contributed strongly to the EM rally YTD, with Chinese companies listed in Hong Kong up 3.7% MoM for a gain of 21.7% YTD. Sentiment towards China continued to improve in June as delegations from China and the US met in London, agreeing to a resumption of the 90-day tariff truce, with China agreeing to ease export restrictions on rare-earth minerals.
The US Federal Reserve (Fed) members held their fourth meeting of the year in June and, as with the previous three meetings, left the Fed’s benchmark interest rate band unchanged (4.25%-4.5% p.a.) as expected. A release of the members’ economic projections showed that most members still expect to see two 0.25% interest rate cuts in 2H25. However, an increasing number of members (c. 40%) believe it would be appropriate to leave rates unchanged for the remainder of the year. The lack of rate cuts comes despite US inflation continuing to trend back towards the Fed’s 2% p.a. target, with members anticipating a reversal of that trend as the impact of tariffs takes hold over the next few months.
The US Dollar Index (-2.5% MoM) continued a slump that has delivered its worst start to the year (-10.7% YTD) in over 50 years (since 1973). US President Donald Trump’s comments about Fed Chair Jerome Powell have left investors questioning the Fed’s independence. In addition, Trump’s trade wars and a proposed budget that will likely increase the US’s borrowing needs by US$3.2trn over the next decade have prompted investors to rethink their exposure to the world’s dominant currency. The price of Brent crude oil spiked to US$88/bbl at the height of the conflict in the Middle East, but retraced much of those gains as tensions eased, ending June 5.8% higher MoM at US$68/bbl.
