The 2025 financial year unfolded in two distinct phases. The first six months were marked by strong equity market performance, supported by solid corporate earnings, stable economic growth, and declining inflation trending towards central bank targets. As the calendar year began, geopolitical uncertainty took hold, with US trade policy becoming a key concern for markets. Fears over the impact of tariffs on inflation and growth prompted an investor shift away from US equities, increased interest in European markets, and greater volatility in bond yields. Investor demand for gold also rose as risk aversion returned to the forefront.

Key market and macroeconomic developments over the 2025 financial year

Jul 2024	Global equities saw significant gains despite increased volatility. Australian and US equities reached new all-time highs. A sector rotation was evident, as high-performing growth stocks retreated in favour of small-cap, cyclical, and value-oriented companies. Consumer discretionary and financials led Australian gains, with the Commonwealth Bank becoming the largest Australian company by market capitalisation. The US market saw strong small-cap performance, with the Russell 2000 up 10.1%. Commodity prices weakened, except gold, which surged 4.1%. Lower inflation and easing rate expectations boosted Australian and US bond markets. Globally, disinflation and softening labour markets suggested central banks were more likely to ease rates.
Aug 2024	Global markets experienced significant volatility before ending well off their lows. The MSCI World Index (AUD) fell 1.18%, driven by weak US labour data, the unwinding of the yen carry trade and geopolitical tensions. Australian equities saw mixed performance, with the S&P/ASX All Ordinaries up 0.4% and small caps down 2.02%. US markets rebounded, supported by strong GDP data and earnings, while Asian and European equities showed mixed results. Global bond markets rallied as inflation moderated, and rate cuts became more likely. Inflation cooling and earnings optimism supported the outlook for a “Soft Landing” scenario.
Sep 2024	Global equity markets surged, buoyed by a significant 50-basis point rate cut by the US Federal Reserve (Fed). Aggressive Chinese stimulus measures lifted Chinese shares, with the Shanghai Composite Index rallying 21%. The MSCI World Index (USD) rose 1.87%, with Australian equities reaching record highs as the S&P/ASX All Ordinaries gained 3.45%. The materials and technology sectors led gains, while defensive sectors lagged. Commodities rallied, with gold up 6.2% and copper rising 12.9%. Inflation cooled globally, supporting monetary easing, but risks of economic slowdown persisted as labour markets softened, and consumer trends continued to show signs of weakness.
Oct 2024	Equity markets pulled back marginally in October. However, government bonds saw high levels of volatility amidst a significant sell-off. Strong economic growth in the US and resilient labour market data domestically and in the US led to a recalibration of interest rate expectations, resulting in higher bond yields. The Australian dollar depreciated sharply as the US dollar gained against major currencies. The US Presidential election added to market volatility as investors responded to swings in the election polls. The US earnings season produced broadly stronger earnings, which were overshadowed by disappointing outlooks from some mega-cap technology companies.
Nov 2024	Equity markets rallied following a resounding US election victory for Donald Trump, with his administration widely expected to introduce domestically focused growth policies. US and Australian share markets gained significantly, while other global markets, especially emerging markets, lagged as capital flowed to sectors expected to benefit from the Trump administration’s expected policy direction. The S&P 500 Index (USD) increased by 5.9%, the biggest monthly gain of the calendar year, but gains were more pronounced for small caps with the S&P Small Cap 600 Index rising by 10.9%. Bond markets experienced initial volatility post the election but ultimately stabilised, with US bonds ending the month stronger.
Dec 2024	Global equities experienced a subdued finish to the year, with the MSCI World Index (USD) declining by 2.6% in December. While the Fed announced an anticipated third consecutive interest rate cut, bond and equity markets reacted negatively. The Fed’s outlook proved more hawkish than expected, indicating only a 0.5% reduction in rates is anticipated for 2025. As US bond yields increased, the US dollar strengthened, exerting further pressure on the Australian dollar, which continued its downward trend. This recalibration of higher interest rate expectations did not overshadow a strong year for equity investors.
Jan 2025	Global equities had a strong start to 2025, with the MSCI World Index (USD) up 3.6%, driven by optimism around monetary policy easing and resilient earnings. The US S&P 500 (USD) rose 2.8%, though tech underperformed with the Nasdaq gaining just 1.6% due to a sharp 17% drop in Nvidia. European markets outperformed, up 6.3%, buoyed by European Central Bank rate cut expectations. Australian equities rallied 4.4%, led by consumer discretionary and financial sectors, as markets priced in a potential Reserve Bank of Australia (RBA) rate cut. Commodities surged, with gold hitting a record $2832/oz (+7%) on safe-haven demand, driven largely by increasing trade tensions. Bond yields spiked mid-month on inflation fears but later eased; US 10-year yields closed at 4.55%, and Australian 10-years at 4.43%.
Feb 2025	Equity markets softened in February, with US markets dragged down by the tech-heavy Nasdaq. Despite a solid earnings season, investors’ enthusiasm for Artificial Intelligence waned. Hopes of a potential end to the Ukraine war, as well as positive economic data, saw European equities rise. Despite a solid earnings season and the RBA’s first rate cut since 2020, Australian equities fell 4%, erasing most year-to-date gains. Amid trade tensions, gold continued its rise, up 1.5%, while bond markets globally rallied. Driven by softer economic data, US 10-year yields dropped 35bps to 4.2%, with Australian 10-year yields following, down to 4.34%
Mar 2025	March was marked by heightened uncertainty surrounding President Trump’s tariff threats, significantly weakening investor sentiment. Global equities fell sharply, with the MSCI World Index (USD) down 4.4% and the S&P 500 (USD) plunging 5.6%, as technology stocks led the decline. Australian equities mirrored the global trend, falling 3.5%. As expected in periods of mass geopolitical uncertainty, gold surged, rising 9.6%. Despite the sell-off in equity markets, bond markets traded sideways, with the potential inflationary impacts of tariffs being weighed against a possible slowdown in economic activity.
Apr 2025	US trade policy largely drove markets in April, with the announcement of reciprocal tariffs on “Liberation Day” seeing intra-month declines exceeding 10%. The 90 day pause, announced a week later, aided markets as they recovered most of the intra-month drawdowns. The S&P500 (USD) ended the month down 0.7%, while the Nasdaq 100 (USD) rose 1.5%. The S&P/ASX All Ordinaries advanced 3.6%, driven by the communication services and information technology sectors. A weaker US dollar did not translate into broad support for commodities; however, gold continued its upward trend, rising 5.9%. Bond markets saw considerable volatility, with the US 10-year yield trading in a range of 60 basis points but ending the month down 5 basis points to 4.16%. Australian 10-year yields fell 29 basis points to 4.13%, swayed by falling domestic inflation.
May 2025	Equity markets rallied following a shift toward diplomacy, with the Trump administration engaging in multiple bilateral trade negotiations and the securing of a temporary reduction in tariffs with China. The S&P 500 (USD) rose 6.3%, while the Nasdaq 100 (USD) surged 9.2%. Small caps also followed, as the Russell 2000 (USD) rose 5.8%. Diminished geopolitical concerns coincided with a robust earnings season, with 78% of companies exceeding earnings per share estimates. Australian and European equities followed suit, with the ASX 200 and Euro Stoxx 50 (EUR) rising 4.2% and 6% respectively. Gold prices were muted, posting a modest decline of 0.7%. US bond markets saw increases in yields, with fears that the proposed ‘One Big Beautiful Bill’ will add to the US budget deficit. US 10-year yields rose to 4.39%. Domestically, Australian 10-year yields followed, drifting higher, but to a lesser extent.
Jun 2025	June saw more geopolitical risks for markets, with the outbreak of war and eventual ceasefire between Israel and Iran, testing market resilience. Equity markets reached new highs, with the MSCI World Index (USD) rising 4.3%, largely driven by the US, as the S&P 500 (USD) rose by 4.5%. Europe, on the other hand, saw a decline. The Euro 100 (EUR) fell by 0.5%. The ASX 200 rose, finishing the month up 1.41%, driven by the energy and financials sectors. The conflict between Israel and Iran drove commodity markets, with gold and oil experiencing large bouts of volatility. Gold traded above $3400 USD/ounce, finishing the month at $3310 USD/ounce. WTI crude oil ended the month up 8.5% to $66.66, having traded just below $74 during the month. Bond markets saw general declines in yields, with the US 10-year yield falling 30 basis points and the Australian 10-year yield falling 12 basis points intra-month.

2025 FINANCIAL YEAR RETURNS

*FTSE EPRA Nareit DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index  

Looking ahead

As we enter the 2026 financial year, we maintain a constructive outlook for global economic growth and the performance of both equity and bond markets. However, the path of returns is unlikely to be smooth, with various risks that could influence expectations as the year unfolds.

Structural themes and key risks

The most significant structural driver of markets currently is the evolving policy landscape under President Trump. The push and pull between protectionist trade measures and fiscal stimulus efforts will be a defining influence across asset classes. Markets are likely to remain sensitive to these policy announcements.

The Artificial Intelligence (AI) theme has been a key growth driver for equity markets over the past few years. This trend is likely to continue as spending in the sector remains robust and the productivity benefits for a broader array of corporates and consumers become more evident. The extent of measurable returns on AI investments will be an important factor in AI’s role as a fundamental catalyst for growth.

Global economic growth

The outlook for global economic growth is moderately constructive, though policy uncertainty in the US presents a critical variable. A key consideration is the conflict between “Tariff Trump” and “Pro-Growth Trump.” While signs of fiscal stimulus are emerging through the administration’s “One Big Beautiful Bill”, the resulting fiscal expansion carries risks. In particular, widening deficits may begin to exert pressure on bond markets and investor sentiment, potentially offsetting the intended growth benefits.

Another downside risk stems from the sizeable volume of US debt scheduled for refinancing over the next 12 months. Elevated yields may amplify fiscal concerns and restrict policy flexibility, adding a layer of complexity to the US growth outlook.

In Australia, economic momentum remains subdued. Government spending has underpinned recent growth, while private sector activity has yet to show meaningful recovery. A sustained uplift in private investment would be necessary to shift the domestic economy onto a more dynamic trajectory.

Inflation and central bank policies

Inflation has generally returned to central bank target ranges across most developed economies, prompting the start of rate cutting cycles in many countries. In contrast, while the US has initiated rate cuts, inflation remains a key concern for the Fed. The potential inflationary effects of proposed tariffs have added to the uncertainty, leading the Fed to pause further easing. At the same time, political pressure to lower rates is expected to intensify as President Trump aims to bolster economic activity.

Australia appears positioned for further monetary policy easing. Inflation has decelerated into the RBA’s target range, and with economic growth lagging, the market is now pricing in three rate cuts before year-end. This policy backdrop should provide support for both household confidence and asset prices.

Fixed income markets

Volatility is expected to remain a defining feature of global fixed income markets, particularly in the US. The interplay between fiscal expansion, trade policy uncertainty, and Fed actions suggests a risk that Treasury yields remain elevated and rangebound for an extended period. Meanwhile, credit spreads remain tight, offering more limited compensation for risk.

Australian fixed income presents a more attractive profile. Inflation is contained, a steady path of cash rate cuts is anticipated, and credit spreads remain more reasonably valued compared to global peers. These factors combine to offer a potentially favourable environment for domestic fixed income investors in the coming quarters.

Equity markets and corporate earnings

Corporate earnings have softened globally over the past six months, though US earnings look to have stabilised and remain at relatively healthy levels. That said, valuations across US large-cap equities continue to appear elevated both in a historical context and relative to international markets. This leaves the market vulnerable to downside surprises should earnings growth disappoint.

In Europe, recent equity outperformance has largely been driven by more attractive valuations rather than improving fundamentals, as earnings growth has also declined. Outlooks remain cautious, with muted expectations for earnings expansion in the near term. However, increases in government fiscal spending, particularly from Germany, may support corporate sector earnings on a medium to longer term view.

Australian equities face more pronounced headwinds. Earnings growth expectations are weaker than many other developed markets and valuations remain expensive relative to historical norms. This combination may limit the upside case for domestic large cap equities.

US small-cap stocks have been particularly affected by recent equity market volatility, reflecting heightened uncertainty around the US centric earnings outlook. Small caps continue to trade at a discount to large-cap peers, but this valuation gap may present selective opportunities should macro conditions become more supportive.

Investment implications

Portfolios should remain well-diversified and strategically positioned to optimise returns while managing for uncertainties. Disciplined risk management and a proactive approach to tactical asset allocation will be critical in navigating the coming opportunities and challenges.

Major market indicators

	30-Jun-25	31-May-25	30-Apr-25	Qtr change	1 year change
Interest Rates (at close of period)
Aus 90 day Bank Bills	3.61%	3.78%	4.02%	-51.0	-78.0
Aus 10yr Bond	4.16%	4.35%	4.27%	-26.1	-8.2
US 90 day T Bill	4.24%	4.25%	4.20%	+3.0	-98.0
US 10 yr Bond	4.23%	4.39%	4.16%	+1.9	-14.1
Currency (against the AUD)
US Dollar	0.655	0.644	0.640	5.17%	-1.87%
British Pound	0.477	0.478	0.479	-1.57%	-9.02%
Euro	0.559	0.567	0.564	-3.62%	-9.85%
Japanese Yen	94.73	92.70	91.63	1.25%	-11.74%
Trade-Weighted Index	60.10	59.60	59.90	0.84%	-5.06%
Equity Markets
Australian All Ordinaries	1.4%	4.2%	3.6%	9.5%	13.2%
MSCI Australia Value (AUD)	1.5%	3.0%	2.9%	7.5%	11.5%
MSCI Australia Growth (AUD)	1.6%	4.9%	5.3%	12.2%	17.8%
S&P 500 (USD)	4.5%	6.3%	-0.7%	10.4%	14.6%
MSCI US Value (USD)	4.5%	2.7%	-3.5%	3.4%	13.2%
MSCI US Growth (USD)	5.8%	10.0%	2.5%	19.3%	18.2%
MSCI World (USD)	4.3%	6.0%	0.9%	11.6%	16.8%
Nikkei (YEN)	6.8%	5.3%	1.2%	13.9%	4.3%
CSI 300 (CNY)	3.3%	2.0%	-2.9%	2.4%	17.4%
FTSE 100 (GBP)	0.0%	3.8%	-0.7%	3.2%	11.3%
DAX (EUR)	-0.4%	6.7%	1.5%	7.9%	31.1%
Euro 100 (EUR)	-0.5%	5.8%	-1.9%	3.3%	9.3%
MSCI Emerging Markets (USD)	6.1%	4.3%	1.3%	12.2%	16.0%
Commodities
Iron Ore (USD)	-2.1%	-1.6%	-5.4%	-3.7%	-13.2%
Crude Oil WTI U$/BBL	8.5%	3.2%	-17.1%	11.9%	-19.5%
Gold Bullion $/t oz	0.0%	-0.7%	5.9%	-0.7%	41.2%

  Source: Quilla, Refinitiv, and Datastream

Summary

June was a strong month for global financial markets, marked by dramatic geopolitical events that tested and highlighted market resilience. Key developments included:

• The outbreak and swift resolution of direct military conflict between Israel and Iran, with the US intervening in an effort to delay the Iranian nuclear programme. This represented the most significant geopolitical shock to financial markets since the tariff announcements earlier in the year. Despite the initial volatility, markets remained resilient, with major equity indices reaching new highs by month-end.

• Concerns on the trade front further abated through the month, with the confirmation of an agreement between the US and China. The agreement builds on the May truce, with specific agreements on the easing of export restrictions for rare earth minerals from China. While this is welcome news, the end of the 90-day delay in tariffs between the US and other major trading partners is quickly approaching on July 9.

• The US Federal Reserve again opted to hold interest rates steady, due to diminishing, but still elevated, economic uncertainty. In Europe, the European Central Bank delivered a 25 basis point cut.

Selected market returns (%), June 2025

Sources: *FTSE EPRA/NAREIT DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index

Key market and economic developments in June 2025

Financial markets

Global equity markets delivered strong performances in June, driven by improving trade relations and increased investor confidence. News of increased hostility and subsequent US involvement in the conflict between Iran and Israel weighed on markets mid-month. However, the confirmation of a ceasefire buoyed markets into the end of the month, seeing the MSCI World (USD) ending the month up by 4.4%.

Australian equities

The ASX 200 finished the month up 1.4%, closing 1% under its all-time high reached on 11 June. This saw the Australian index post a year-to-date (YTD) gain of 6.4%. The energy sector led the index, posting a 9% return, with the proposed Emirati takeover of Santos (STO) being a major driver. The financials sector continued its recovery from the depths of the “Liberation Day” sell-off off with the sector finishing the month up 4.3%. This was underpinned by the Commonwealth Bank of Australia (CBA), with June seeing Australia’s largest company post a 5% gain, bringing its YTD return to 22%. The materials sector continued its lacklustre year, falling 3.1%.

Global equities

US equity markets spearheaded the global advance, as the S&P 500 (USD) continued its rebound from its low in April. The index rose 4.5%, recovering from the drawdowns at the beginning of the year, finishing the month at all-time highs. The technology sector underpinned the gain, rising 9.8%, with Nvidia (NVDA) up 17%. US small caps followed large caps in their rebound, with the Russell 2000 (USD) rising 5.3%.

European equity markets were broadly weaker, with the Euro 100 (EUR) falling by 0.5%. The German DAX (EUR) followed this trend, decreasing by 0.4%. This was in contrast to Asian markets, with the Nikkei (YEN) rising by 6.8% and CSI 300 (CNY) rising by 3.3%. The Chinese market was buoyed by hopes, and later confirmation, of a trade deal between the US and China, which drove emerging markets, with MSCI Emerging Markets (USD) continuing its impressive 2025, rising 6.1%.

Commodities

Geopolitical concerns, specifically surrounding the Iran-Israel conflict, drove commodity markets, with June characterised by increased volatility. Gold finished the month at $3310 USD/ounce, after rising to $3440 at the peak of the conflict. The conflict also drove a significant rise in WTI Crude from the month’s low of $62.50 to $73.84, ending the month up 8.5% to $66.66. This was in contrast to iron ore, which slid 2.1% for the month.

Bond markets

US treasury markets saw yields decline across most maturities during June. The benchmark US 10-year government bond yield exhibited volatility, ending the month at 4.23%, having traded up as high as 4.51% earlier. The fall was driven by several factors, including a downward revision of Q1 GDP from -0.2% to -0.5%, falling consumer expectations of inflation, and speculation that President Trump will name a more dovish Federal Reserve chair. Increased spending on account of the ‘One Big Beautiful Bill’ remains an upward pressure on yields.

Moves in the Australian 10-year government bond yield, on the other hand, were more muted, declining from highs of 4.3% to 4.16%.

Economic developments

Australian economic data paves the way for further monetary easing

Following the 25-basis point rate cut delivered by the Reserve Bank of Australia (RBA) in May, market expectations solidified around an additional cut at the July 7-8 policy meeting. The release of Q1 GDP data early in the month fuelled this expectation, with GDP rising by just 0.2% in the quarter and by 1.3% year-on-year to the end of March, continuing the trend of lacklustre growth within the Australian economy. The datapoint came in below the already downwardly revised forecast of 0.4%.

The release of monthly CPI further buoyed expectations of a July rate cut. Monthly CPI slowed from 2.4% in May to 2.1% below economic forecasts of 2.4%. This leaves CPI at the lower end of the RBA’s 2-3% target range. The release also saw a moderation in trimmed mean CPI from 2.8% to 2.4%, also below economists’ forecasts of 2.6%. This broad moderating trend, paired with the continued lack of economic growth, underpins the view of increased monetary easing, with market pricing for interest rate cuts now sitting slightly above the RBA’s May forecast of two to three cuts by the end of the year.

US tariffs remain at the front of investors’ minds

The news of a trade deal between the US and China was welcomed by markets. The agreement, hatched on 26 June, builds on the framework announced earlier in the month. This will see China ease restrictions on the acquisition of Chinese magnets and rare earth minerals by American firms. The US also announced it would stop seeking to revoke the visas of Chinese students. While the easing of tariff tensions between the two nations is positive for markets, the 9 July deadline for the initial 90-day tariff pause is fast approaching.

Despite this, the Trump administration has continued to downplay the deadline, with President Trump noting the impossibility of negotiating trade deals with all nations within that period. Meanwhile, Treasury Secretary Scott Bessent stated that the administration expects negotiations to continue beyond the deadline, with trade agreements involving 10 to 12 of America’s most important trading partners expected to be finalised by September.

Outlook

Despite subdued confidence, economic and market fundamentals have demonstrated notable resilience. However, ongoing uncertainty around economic and political developments reinforces the importance of staying active and vigilant to both risks and opportunities. While downside risks remain and may trigger periods of volatility, several supportive factors continue to underpin global economic growth and market performance.

Major market indicators

	30-Jun-25	31-May-25	30-Apr-25	Qtr change	1 year change
Interest Rates (at close of period)
Aus 90 day Bank Bills	3.61%	3.78%	4.02%	-51.0	-78.0
Aus 10yr Bond	4.16%	4.35%	4.27%	-26.1	-8.2
US 90 day T Bill	4.24%	4.25%	4.20%	+3.0	-98.0
US 10 yr Bond	4.23%	4.39%	4.16%	+1.9	-14.1
Currency (against the AUD)
US Dollar	0.655	0.644	0.640	5.17%	-1.87%
British Pound	0.477	0.478	0.479	-1.57%	-9.02%
Euro	0.559	0.567	0.564	-3.62%	-9.85%
Japanese Yen	94.73	92.70	91.63	1.25%	-11.74%
Trade-Weighted Index	60.10	59.60	59.90	0.84%	-5.06%
Equity Markets
Australian All Ordinaries	1.4%	4.2%	3.6%	9.5%	13.2%
MSCI Australia Value (AUD)	1.5%	3.0%	2.9%	7.5%	11.5%
MSCI Australia Growth (AUD)	1.6%	4.9%	5.3%	12.2%	17.8%
S&P 500 (USD)	4.5%	6.3%	-0.7%	10.4%	14.6%
MSCI US Value (USD)	4.5%	2.7%	-3.5%	3.4%	13.2%
MSCI US Growth (USD)	5.8%	10.0%	2.5%	19.3%	18.2%
MSCI World (USD)	4.3%	6.0%	0.9%	11.6%	16.8%
Nikkei (YEN)	6.8%	5.3%	1.2%	13.9%	4.3%
CSI 300 (CNY)	3.3%	2.0%	-2.9%	2.4%	17.4%
FTSE 100 (GBP)	0.0%	3.8%	-0.7%	3.2%	11.3%
DAX (EUR)	-0.4%	6.7%	1.5%	7.9%	31.1%
Euro 100 (EUR)	-0.5%	5.8%	-1.9%	3.3%	9.3%
MSCI Emerging Markets (USD)	6.1%	4.3%	1.3%	12.2%	16.0%
Commodities
Iron Ore (USD)	-2.1%	-1.6%	-5.4%	-3.7%	-13.2%
Crude Oil WTI U$/BBL	8.5%	3.2%	-17.1%	11.9%	-19.5%
Gold Bullion $/t oz	0.0%	-0.7%	5.9%	-0.7%	41.2%

Sources: Quilla, Refinitiv Datastream

Summary

The Trump administration signalled a shift toward diplomacy, engaging in multiple bilateral trade negotiations and securing a temporary but significant reduction in tariffs with China. This move helped restore investor confidence, with equity markets rebounding from April losses. US markets are increasingly pricing in the prospect of ongoing dialogue and a reduced economic impact from trade tensions.

Despite these developments, the US maintained a broadly protectionist stance, notably raising tariffs on steel and aluminium. However, a recent unfavourable court ruling has raised legal questions around President Trump’s ‘Liberation Day’ reciprocal tariffs.

On the monetary policy front, the US Federal Reserve opted to hold interest rates steady, citing elevated uncertainty. In contrast, the Reserve Bank of Australia (RBA) took a more proactive stance, cutting the official cash rate to 3.85% in an effort to support domestic growth.

Selected market returns (%), May 2025

 Sources: *FTSE EPRA/NAREIT DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index

Key market and economic developments in May 2025

Financial markets

Global equity markets quickly recovered losses from April, with the MSCI World (USD) rising a sizable 6.0% during the month, led by the US market, with the S&P 500 rising 6.3%. The US market total return is now positive for the 2025 calendar year, although it is yet to reach its previous high on February 19.

Australian equities

The ASX 200 posted a strong gain of 4.2% in May, pushing calendar year returns into positive territory and bringing the index just shy of its all-time high set in February 2025. The Financials sector remained the primary driver of performance, returning 5.1% for the month, led by index heavyweight Commonwealth Bank of Australia (CBA), which rose 5.6%. Over the past 12 months, CBA has delivered an impressive 52% return, making it by far the largest contributor to Australian equity market gains.

Information Technology was the standout performer in percentage terms, surging 19.8% as global growth and tech stocks rallied sharply. Energy also delivered solid gains, rising 8.6% despite relatively flat oil prices. Meanwhile, the Resources sector continued to underperform on a relative basis, managing a modest 1.8% increase for the month.

Global equities

There was widespread strength in global equity markets, as a relief rally was broadly felt across developed and emerging markets. The US market was driven higher by large cap technology, with a 9.2% rise in the Nasdaq 100 (USD) index. The broader S&P 500 (USD) was up 6.3%, while the Russell 2000 (USD) small cap index was up 5.8%. Markets across key trading partners were also very strong, with the Euro Stoxx 50 (EUR) index, Japanese Nikkei 225 (JPY) and the Hang Seng (HKD) rising 6.0%, 5.3% and 6.6% respectively.

The US earnings season through May was again relatively robust, with 78% of companies exceeding Earnings per Share (EPS) estimates, in line with the 5-year average[1]. Companies reported annual earnings growth of 12.9%, which supported the market. There were concerns that companies would downgrade or withdraw their guidance for profits in upcoming quarters, which typically hurts investor confidence. However, from S&P 500 only 8 companies withdrew guidance and 37 downgraded, with 64 increasing and 139 maintaining guidance.

Commodities

Commodity markets delivered mixed performance in May. Gold posted a modest decline of -0.7%, reflecting a moderation in tariff-related concerns and a more tempered risk environment.

Crude oil prices continued to weaken amid a shift in OPEC+ dynamics. Led by Saudi Arabia, key producers ramped up output in an effort to reclaim market share and exert pressure on member nations exceeding production quotas. With global markets already well-supplied and demand outlooks uncertain, Brent Crude fell to $61 per barrel, weighed down by oversupply concerns and broader economic uncertainty.

Bond markets

US bond markets saw yields increasing through May, leading to lower prices, especially for longer dated bonds. The US House of Representatives narrowly passed the ‘One Big Beautiful Bill’ budget, which is estimated to add $2.4 trillion to the US deficit over a decade,[2] leading to further concerns around fiscal sustainability. This was compounded by a poor outcome from an auction of new 20-Year US Treasury Bonds and a sovereign credit downgrade from Moody’s, leading to pressure on bond prices. Long dated 20 and 30-year bonds finished the month just under the psychological 5% level, while the 10-year rose from 4.16% to 4.39%.

Domestically, Australian bonds also drifted higher but to a lesser extent, reflecting a better fiscal situation in Australia and market expectations of further rate cuts from the RBA.

Economic developments

RBA cuts interest rates

As anticipated, the RBA reduced the cash rate from 4.1% to 3.85% in May. The decision was largely driven by a more favourable inflation outlook, as we noted in April. The RBA highlighted that year-on-year trimmed mean inflation (to the end of March) eased to 2.9%, with headline CPI at 2.4%, and both measures are expected to remain broadly stable in the near term.

The RBA described domestic economic conditions as mixed. The labour market remains resilient, with the unemployment rate holding steady at 4.1%. However, consumer spending and sentiment have softened more than expected. While the RBA reiterated its data-dependent approach to future policy moves, market participants are now pricing in two to three additional rate cuts over the course of 2025.

US Court of International Trade throws tariff into doubt

In a surprise ruling in late May, the US Court of International Trade unanimously ruled that the Trump administration’s sweeping ‘Liberation Day’ tariffs, introduced under the 1977 International Emergency Economic Powers Act (IEEPA), were unlawful. President Trump had cited the US trade deficit as an “ongoing emergency” to justify the tariffs, but in a detailed 50-page judgment, the court found that the IEEPA does not grant the President the authority to impose tariffs in this manner. The ruling casts serious doubt over the legal foundation of the policy. The administration has since appealed, with expectations that the case could eventually reach the Supreme Court.

This legal setback exposes a vulnerability in President Trump’s trade strategy, particularly given the lack of precedent and the unanimous nature of the ruling. It also raises questions about the administration’s ability to impose tariffs unilaterally, as seen earlier in the year. The uncertainty may prompt trade partners to adopt a more cautious, wait-and-see approach to negotiations, potentially delaying progress on new agreements.

While the ruling specifically targets the IEEPA-based tariffs, other trade restrictions, such as those on steel, aluminium, and autos, remain in place under Section 232 of the Trade Expansion Act, which allows for tariffs on national security grounds. These measures, although also facing legal challenges, may serve as alternative tools for the administration to advance its protectionist agenda.

Outlook

Uncertainty with respect to US government policy, the economy and the market remains elevated. However, a closer look at economic and market fundamentals reveals several areas of resilience that should not be overlooked. While zero-sum trade tensions act as a drag on global growth, they may be partially offset by several constructive developments, such as continued advances in AI driving productivity, fiscal reform and rate cuts in Europe, and ongoing stimulus and structural reform efforts in China.

Although the range of potential outcomes is broad, our base case remains that the global economy and markets will likely experience bouts of volatility but continue to move forward. In this environment, we see strong value in diversification as a key risk management tool. We see significant benefit to investors in diversification to manage risk and believe that remaining active and alert to risks and opportunities is crucial.

Major market indicators

	31-May-25	30-Apr-25	31-Mar-25	Qtr change	1 year change
Interest Rates (at close of period)
Aus 90 day Bank Bills	3.73%	4.02%	4.12%	-44.0	-63.0
Aus 10yr Bond	4.28%	4.13%	4.42%	-14.2	-4.4
US 90 day T Bill	4.25%	4.20%	4.21%	+5.0	-100.0
US 10 yr Bond	4.39%	4.16%	4.21%	+19.0	-10.0
Currency (against the AUD)
US Dollar	0.644	0.640	0.623	3.49%	-3.23%
British Pound	0.478	0.479	0.485	-3.30%	-8.49%
Euro	0.567	0.564	0.580	-5.22%	-7.56%
Japanese Yen	92.70	91.63	93.56	-0.75%	-11.40%
Trade-Weighted Index	59.60	59.90	59.60	0.17%	-5.55%
Equity Markets
Australian All Ordinaries	4.2%	3.6%	-3.5%	4.1%	12.4%
MSCI Australia Value (AUD)	3.0%	2.9%	-2.5%	3.3%	10.9%
MSCI Australia Growth (AUD)	4.9%	5.3%	-5.4%	4.5%	19.7%
S&P 500 (USD)	6.3%	-0.7%	-5.6%	-0.4%	13.5%
MSCI US Value (USD)	2.7%	-3.5%	-2.4%	-3.4%	8.4%
MSCI US Growth (USD)	10.0%	2.5%	-9.0%	2.6%	19.5%
MSCI World (USD)	6.0%	0.9%	-4.4%	2.3%	14.2%
Nikkei (YEN)	5.3%	1.2%	-3.3%	3.0%	0.6%
CSI 300 (CNY)	2.0%	-2.9%	-0.1%	-1.0%	10.8%
FTSE 100 (GBP)	3.8%	-0.7%	-2.0%	1.0%	10.1%
DAX (EUR)	6.7%	1.5%	-1.7%	6.4%	29.7%
Euro 100 (EUR)	5.8%	-1.9%	-1.9%	1.8%	6.7%
MSCI Emerging Markets (USD)	4.3%	1.3%	0.7%	6.4%	13.6%
Commodities
Iron Ore (USD)	-1.6%	-5.4%	-1.5%	-8.3%	-19.3%
Crude Oil WTI U$/BBL	3.5%	-17.1%	2.7%	-11.9%	-20.9%
Gold Bullion $/t oz	-0.7%	5.9%	9.6%	15.2%	41.0%

Sources: Quilla, Refinitiv Datastream

---

[1] According to Factset

[2] According to Yale Budget Lab

Summary

The Trump administration announced reciprocal tariffs in early April, in what was labelled ‘Liberation Day’. The scale of tariffs was much higher than expected, triggering a plunge in global equity markets and a spike in volatility to the highest levels in five years. Concerns of a potential US recession and resurgent inflation fuelled these reactions. Equity markets subsequently stabilised and recovered most post-announcement losses as the administration delayed numerous tariffs and granted exemptions, coinciding with many countries proactively entering trade negotiations. Domestically, a moderate quarterly inflation report boosted expectations for a post-election interest rate cut.

Selected market returns (%), April 2025

 Sources: *FTSE EPRA/NAREIT DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index

Key market and economic developments in April 2025

Financial markets

Global equity markets experienced significant volatility, impacted by heightened tariff-related concerns. Despite intra-month declines exceeding 10%, the MSCI World Index (USD) recovered to finish the month with a positive gain of 0.9%, supported by a weaker US dollar and indications of a potential de-escalation in US trade tensions towards the back end of the month.

Australian equities

The S&P/ASX All Ordinaries advanced 3.6% in April, recouping its March loss.  Similarly, the S&P/ASX MidCap 50 Index rose by 3.4%, while the Small Ordinaries Index recorded a more modest increase of 1.8%. Communications Services and Information Technology were the strongest performing sectors, increasing by 6.5% and 6.4% respectively. The Materials sector posted a 0.7% increase despite general softness in commodity prices, while the Energy sector declined by 7.7% amidst a sharp fall in oil prices.

Global equities

In the US, equity markets largely recovered substantial intra-month drawdowns. The S&P 500 (USD) ended April slightly lower, closing down 0.7%. The technology-focused Nasdaq 100 (USD) advanced 1.5% for the month, staging a sizable rally from its early April low. The Russell 2000 (USD), representing US small-caps, declined by 2.4%, as potential economic headwinds for domestically focused businesses weighed on sentiment. Sector performances were varied, influenced by the commencement of the US earnings season, which offered some support amidst evolving expectations for slowing earnings growth. Information Technology was the leading sector, gaining 1.6%.  The weakest performers were Energy, which fell 13.7%, and Healthcare, which declined 3.7%.

European equity markets were broadly weaker, with the Euro 100 (EUR) decreasing by 1.9%. The German DAX (EUR), however, continued its trend of relative strength, advancing 1.5%. The CSI 300 (CNY) fell 2.9% as Chinese equities were negatively affected by the US tariff news. Nevertheless, the broader MSCI Emerging Markets (USD) registered a gain of 1.3%, bolstered by a strong rally in Indian equities as the Nifty 50 (INR) rose by 3.5%, supported by perceived progress in trade negotiations with the US.

Commodities

A weaker US dollar in April did not translate into broad support for commodity prices. Gold, however, continued its upward trend driven by safe-haven demand, rising 5.9% to close the month at $3308 per ounce. Global economic growth concerns weighed on the demand outlook for crude oil, leading to a substantial decline of 17.1% to $58.15 per barrel. Similarly, base metals saw price weakness, with copper prices dropping 8.3% and iron ore falling 5.4%.

Bond markets

April saw considerable volatility in bond markets. The benchmark US 10-year Treasury yield experienced a large intra-month trading range of 60 basis points but ultimately closed the month 5 basis points lower at 4.16%. This volatility reflected investors’ efforts to reconcile the potential inflationary impacts of US tariffs, which could push yields higher, against a weakening economic growth outlook that would typically pressure yields downwards. The elevated level of bond market volatility ultimately proved crucial to the US administration softening its tariff implementation in the week that followed ‘liberation day’.

Domestically, the benchmark Australian 10-year bond yield declined by 29 basis points, ending the month at 4.13%. The Australian bond market focused more on the evolving domestic inflation outlook and its potential implications for the future path of interest rates, rather than being swayed by global uncertainties.

Economic developments

Inflation data raises the likelihood of an RBA rate cut

Australia’s core trimmed mean Consumer Price Index (CPI), the Reserve Bank of Australia’s (RBA) preferred underlying inflation measure, registered 2.9% year-on-year, moderating from 3.2%. This aligned with the RBA’s February forecast and marked a return to the 2-3% target band for the first time since late 2021. Headline CPI held steady at 2.4%, showing further moderation in some stickier components like new dwelling prices, while insurance premiums saw their slowest rise since 2022. These outcomes strengthen the case for a 25 basis point rate cut in May.

The Australian labour market remained resilient, with the unemployment rate remaining close to full employment at ~4%. Positively, employment grew by 32,200, with measures of underemployment and youth unemployment improving marginally. However, job advertisements fell for the second consecutive month, indicating future potential softening.

The Westpac-Melbourne Institute Consumer Sentiment Index fell 6% in April, driven by weaker finance and employment outlooks. Notably, consumers surveyed after President Trump’s tariff announcement reported a 10% drop in confidence compared to a 2.1% fall among those surveyed prior.

Tariffs weigh on the global economic outlook

Tariff-induced uncertainty negatively impacted US economic data. Preliminary Q1 US Gross Domestic Product (GDP) contracted at an annualised rate of -0.3%, missing the 0.2% forecast, primarily due to a sharp fall in net exports and slower consumption reflecting decreased confidence. Business investment did rise, partly boosted by tariff-related inventory building.

The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures (PCE) Price Index, slowed to 2.3% year-on-year from 2.7%, slightly above the 2.2% expectation. While a positive outcome for the interest rate outlook, forward-looking inflation expectations have increased in line with tariff increases. The labour market remained resilient, with a stronger-than-expected 228,000 increase in payrolls and unemployment up slightly to 4.2%.

The Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI) dropped sharply to 50.8 from 53.5, missing expectations and highlighting a slowdown in the US services sector. The report noted significantly slower new orders and notable employment weakness.

Consumer confidence declined for a fifth straight month to 86.0 from 92.9. Consumers rated short-term business and personal income prospects at the lowest level since 2011. Small business sentiment also weakened, extending its post-election reversal amid rising policy risks.

Despite a better-than-expected preliminary Q1 Eurozone GDP expansion of 1.2% and a European Central Bank (ECB) rate cut of 0.25%, Eurozone sentiment deteriorated sharply. Economic sentiment slumped in April to -18.5 from 39.8, the largest decline since Russia invaded Ukraine in 2022. The outlook for Germany remains deeply pessimistic, weighed down by rapidly shifting US trade policy.

Outlook

Looking ahead, investor vigilance is crucial as global economic and political developments continue to drive market sentiment. Tariffs will remain a key focus, and markets are likely to react positively to any significant de-escalation or hints of pro-growth policy shifts from the US administration. However, prolonged trade tensions increase the risk of a deeper US economic slowdown. The Australian economic outlook appears more favourable, less exposed to tariff fallout and supported by expected monetary policy easing.

The evolving economic and policy landscape in both the US and Australia underscores the importance of flexibility and active management in navigating market volatility.

Major market indicators

Sources: Quilla, Refinitiv Datastream

Summary

March was marked by heightened uncertainty surrounding President Trump’s tariff threats, significantly weakening investor sentiment. Concerns over a potential economic slowdown and the inflationary effects of tariffs drove fears, culminating in sharp global equity market selloffs with investors shifting to more defensive positioning.

Selected market returns (%), March 2025

Sources: *FTSE EPRA/NAREIT DEVELOPED, **FTSE Global Core Infrastructure 50/50 Index

Key market and economic developments in March 2025

Financial markets

Global equities continued to decline in March, with the MSCI World Index (USD) down 4.4%. Volatility increased, reflecting heightened uncertainties about the potential negative economic impacts of US trade and economic policies. Developed markets saw broad selloffs, while Chinese and Indian equities helped lift emerging markets. Bond yields remained largely stable.

Australian equities

The S&P/ASX All Ordinaries fell 3.5%, moving into negative territory for the year-to-date. Weakness persisted across sectors, with the MidCap 50 and Small Ordinaries indices declining 3.5% and 3.6%, respectively. Utilities gained 1.5% as investors sought defensive assets. Despite solid gains in industrial and precious metals, a 24% drop in the shares of James Hardie Industries, on the back of a significant acquisition announcement, weighed on the Materials sector, which closed 0.3% lower. Information Technology led declines for the second month, ending 9.7% lower, followed by the Consumer Discretionary sector, which fell 6.3%.

Global equities

US equities led developed market declines, with the S&P 500 (USD) down 5.6% to a six-month low. The Nasdaq (USD) posted a 7.7% drop, its worst quarter in nearly three years, as several mega cap technology stocks posted double-digit declines. Investor positioning continued to move away from US exposures in what has been a consensus overweight position in recent years. The Russell 2000 Index (USD) fell 7%, weakening further, as the economically sensitive sector’s performance was impacted by a more uncertain US economic outlook.

European equities also struggled, with the Euro 100 (EUR) declining by 1.9%. Nevertheless, the region concluded the first quarter with strong gains, largely driven by German large-cap stocks that were buoyed by expectations of increased government spending. The Hang Seng (HKD) rose by 0.8%, benefiting from positive investor sentiment following Chinese authorities’ pledges of economic stimulus. Indian equities rallied, with the Nifty 50 (INR) climbing 6.3%, recovering from oversold levels.

Commodities

Gold surged 9.6% to close at US$3122/oz, as investors sought a safe haven amid trade and geopolitical uncertainty. Precious metals, including silver and platinum, were also significantly higher, supported by a weaker US dollar. The copper price continued to rise, gaining 12.4%, supported by both Chinese stimulus and the threat of US tariffs on copper imports. Brent crude oil held steady at $72.35 per barrel.

Bond markets

Bond markets traded sideways in both the US and Australia. The Australian 10-year yield rose 5 basis points to 4.47% despite lower-than-expected domestic inflation. The US 10-year yield remained stable at 4.21% as the inflationary impacts of tariffs were weighed against a potential slowdown in US economic activity. Germany experienced a major bond selloff, with its 10-year yield surging 31 basis points in one day, the sharpest move since 1997, following a significant increase in government spending plans.

Economic developments

Australian growth improves with inflation continuing to moderate

Q4 GDP showed some improvement, rising slightly more than expected to 1.3% year-on-year, up from 0.8%. The underlying data highlighted stronger private consumer spending aided by income tax cuts, but productivity remained poor with GDP per hour worked falling by 1.2% over the year.

Consumer confidence rose 4% to a three-year high as consumers responded favourably to the Reserve Bank of Australia’s (RBA) mid-February interest rate cut. Consumers’ expectations of unemployment remained very low. The unemployment rate was unchanged at 4.1%, but employment numbers showed a surprising fall of 53,000, impacted by fewer older workers returning to the jobs market.

Monthly headline CPI rose 2.4% year-on-year, lower than the 2.5% economists had expected. In a positive signal for the interest rate outlook, stickier subcomponents of the CPI basket such as rent, insurance and new housing costs continued to show slower price increases.

Uncertainty clouds the US economic outlook while Germany lifts fiscal spending

The Trump administration’s volatile trade policy continued to raise levels of economic uncertainty. This negatively impacted “soft” economic data releases across both business and consumer surveys of current conditions and future expectations, where worries of rising inflation and slower growth hampered sentiment and activity levels.

The US Federal Reserve (Fed) held rates steady as expected. Chair Powell’s comments in the press conference highlighted the increased levels of uncertainty related to fiscal and trade policies and their subsequent impacts on both growth and inflation. The Fed revised their 2025 economic growth from 2.1% to 1.7% while revising the PCE inflation forecast higher from 2.5% to 2.8%. Expectations from the median Federal Open Market Committee (FOMC) are for two interest rate cuts this year.

Germany signalled a significant shift from a conservative fiscal stance where the government announced a €500 billion infrastructure investment fund alongside reforms to its “debt brake” rule, which traditionally capped borrowing. These changes are expected to allow for increased fiscal flexibility to address economic stagnation and geopolitical challenges.

Chinese authorities maintained their 5% GDP growth target for 2025 while also announcing a planned increase in the budget deficit from 3% to 4% of GDP, the largest in more than three decades. Additional stimulus measures were also announced to further boost the Chinese economy.

Outlook

The increasing risk of a global trade war has heightened investor fears of a US recession, leading to a repricing of global financial markets to reflect higher risk premiums. Although consensus forecasts still predict that the US will avoid a recession this year, persistent economic uncertainty could impede growth. However, a de-escalation of trade tensions and clearer trade policies could lead to market stabilisation and a potential recovery in risk assets after a significant derating.

In an environment where unsettling headlines often dominate the narrative, investors should not overlook the positive factors that can inform strategic decision-making. Successfully navigating this environment requires a disciplined yet dynamic approach to portfolio management.

Major market indicators

Sources: Quilla, Refinitiv Datastream

Stay informed with the latest updates in finance and investment. Explore key market trends, economic insights, and expert analysis in our Investment and Economic Snapshot for February 2025.

Stay informed with the latest updates in finance and investment. Explore key market trends, economic insights, and expert analysis in our Investment and Economic Snapshot for January 2025.

Read the latest in finance and investment news in our Investment and Economic Snapshot for December 2024.