United States
As we approach the midyear mark, the main Wall Street stock indexes are nearing new record highs. This resurgence is supported by a weakening dollar, the prospect of lower borrowing rates, increasing trade optimism, and a renewed focus on artificial intelligence. The Nasdaq Composite rose over 6.00%, and the S&P 500 advanced 4.00% in June 2025. The VIX ‘fear index’ dropped to a four-month low, while gold prices slipped to their lowest in almost a month. The US Dollar significantly weakened, with the DXY index down over 10% since January.
The annual inflation rate in the US rose for the first time in four months, reaching 2.4% in May 2025, up from April’s 2.3%. During its June meeting, the Federal Open Market Committee (FOMC) left interest rates unchanged at 4.25–4.50%, as widely expected. The overall tone was cautious, reflecting persistent economic uncertainty and a desire to maintain policy flexibility while holding a positive view of the economy. The Fed’s projections indicated two rate cuts later this year, though inflation and unemployment forecasts both rose.
Most US economic data proved disappointing. Retail sales declined 0.9% in May, primarily due to falling auto sales. Housing indicators also weakened, reflecting negative builder sentiment amid high mortgage rates; new home construction plummeted nearly 10% to its lowest level since 2020. US Treasury yields fell, boosting bond prices as investors sought safety amid geopolitical risks. Investment-grade corporate bonds performed well, while sentiment for high-yield bonds was more cautious due to macroeconomic volatility and market uncertainty.
Europe
In Europe, the region-wide Stoxx Europe 600 index fell by 1.2% for the month but recorded a year-to-date gain of over 6%. This strength suggests robust investor confidence in European equities. Eurozone consumer price inflation was confirmed at 1.9% year-on-year in May 2025, down from 2.2% in April and dipping below the European Central Bank’s (ECB) 2.0% target for the first time since September 2024. The slowdown was largely driven by a sharp drop in services inflation and energy prices. Consumer spending remained subdued, particularly in France, where household consumption has stagnated. Trade tensions with the United States continue to weigh on industrial performance across the region.
The ECB cut its key interest rates by 25 basis points to 2.15% at its June meeting, based on updated inflation and economic forecasts. The Eurozone economy grew by 0.6% in the first quarter of 2025, doubling the earlier estimate of 0.3% and marking its strongest expansion since Q3 2022. This growth was driven by Ireland’s exceptional 9.7% surge and a strong performance from Germany. Swiss interest rates returned to zero as the Swiss National Bank battles the deflationary effects of currency strength, largely due to the franc’s ‘safe haven’ appeal. Norway also surprised with a quarter-point cut, easing pressure on an oil-driven krone that had hit two-year highs this week.
The Euro continued to appreciate, surpassing $1.17 and reaching a fresh 2021 high, bolstered by general dollar weakness. The ceasefire between Iran and Israel continues to hold, boosting risk sentiment and reducing uncertainty.
United Kingdom
The FTSE 100 posted year-to-date gains of over 6%. Donald Trump signed an executive order to implement his US trade deal with the UK, making the UK the only country to have struck a trade agreement with the US since Trump launched his sweeping “liberation day” tariffs. In return for cuts to Trump’s tariffs, the UK granted the US greater market access for beef, ethanol, and industrial products.
The UK’s GDP data painted a mixed picture. Core inflation eased to 3.5% in May from 3.8% in the previous month. Transport costs fell, while food and household goods prices rose. The Bank of England held rates at 4.25% at its June meeting, with a Monetary Policy Committee (MPC) split of 6–3, highlighting internal debate amidst heightened global uncertainty and persistent inflationary pressure.
The pound appreciated to its strongest level against the US dollar since January 2022 and is up approximately 9.7% year-to-date.
China
In China, equity markets experienced a mild recovery in June but remain subdued below earlier peaks, influenced by macroeconomic fragility, deflationary trends, and trade turbulence. China saw its fourth consecutive month of consumer deflation in May, with CPI declining by -0.1% year-on-year. This was attributed to ongoing trade risks with the US, sluggish domestic demand, and concerns over job stability.
Chinese Industrial profits also dropped sharply in May, erasing gains for the January-April period. The property sector remains under significant stress, with residential prices continuing to slide and investment in real estate down 10.7% year-to-date. The cumulative property slump continues to heavily weigh on household wealth and credit demand.
The government continues to implement easing measures through both monetary and fiscal channels to support the economy.
Japan
Japan’s equity landscape bounced back following sharp declines and selloffs in April, with the Nikkei 225 posting gains of over 6% this month, suggesting renewed investor confidence. The core CPI in Japan rose to 3.7% year-over-year in May, its highest level in over two years, driven by strong food prices. The Bank of Japan (BoJ) held its policy rate steady at 0.5% and signalled a cautious tapering of bond purchases starting in 2026.
Meanwhile, Japan’s exports declined 1.7% in May. US tariffs, especially on automobiles, impacted major exporters like Toyota. A trade deal with the US remains elusive, raising economic concerns. Auto exports to the US plunged 24.7%, with overall exports to the US dropping 11.1% and to China by 8.8%, suggesting weakening global demand.
Conclusion
June 2025 painted a picture of cautious optimism, with global equity markets rallying amidst easing geopolitical tensions and a general softening of inflation signals. While the US and Japan showed strong market rebounds, Europe experienced a slight dip, and China continued to navigate its unique economic challenges. Central banks largely maintained a dovish stance, setting the stage for potential rate cuts later in the year, a key factor to watch as we move into the second half of 2025.
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Disclaimer
This Market Review is for general information purposes only and does not constitute financial, legal, or tax advice. Data has been sourced from publicly available materials, including the Federal Reserve, ECB, Bank of England, IMF, JPMorgan, Schroders, Reuters, and other official institutions. Past performance is not a reliable indicator of future results. You should always seek personalised advice from a qualified adviser.
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