June marked a turning point for global markets as the signing of a peace agreement in the Middle East triggered a relief rally across energy markets. While oil prices quickly retreated towards their pre-conflict levels, the broader macroeconomic effects proved far less immediate.
While a brief resurgence in hostilities over the final weekend of June reminded investors that geopolitical risks remain elevated, markets interpreted the agreement as significantly reducing the risk of further large-scale supply disruptions.
Oil exports from the Gulf have begun to recover, although shipping routes, insurance premiums and port logistics remain dislocated. As a result, transportation costs and several industrial and agricultural commodity prices continue to trade above pre-war levels, suggesting that the inflationary effects of the conflict will fade only gradually rather than disappear immediately.
Global equity markets recovered strongly through much of the month as lower oil prices eased inflation expectations. Nevertheless, central banks remained cautious, stressing that one month of improving energy prices is insufficient to declare victory over inflation. Technology shares remained volatile throughout June as investors balanced improving macroeconomic conditions against concerns over elevated valuations, particularly within artificial intelligence-related companies.
United States
The US economy faced renewed inflationary pressures during June as both headline CPI and core PCE inflation surprised to the upside. The new Fed Reserve Chair, Kevin Warsh left policy rates unchanged while signalling that interest rates may need to remain restrictive for longer. Treasury yields initially rose following stronger inflation data before easing later in the month as falling oil prices moderated longer-term inflation expectations.
Policymakers have noted economic activity expanded at a solid pace despite elevated uncertainty. Job gains have kept pace with the workforce while inflation remains elevated relative to the 2% goal.
US equity markets performance stayed resilient, supported by easing geopolitical tensions and falling energy prices. The much anticipated IPO of SpaceX became one of the defining market events of the month, debuting at a valuation of $1.77 trillion and surging to $2 trillion on day one coupled with the listing of “SPCX” on the Nasdaq bolstered by fast-tracked inclusion into the benchmark Nasdaq-100 reshaped tech sector dynamics. The S&P 500 and Dow Jones Industrial Average recovered much of their earlier losses, although the Nasdaq experienced greater volatility as investors questioned the sustainability of exceptionally high valuations across leading AI companies. Financials and consumer discretionary sectors benefited from improved sentiment, while energy stocks underperformed as crude prices declined.
United Kingdom
The UK economy experienced a similar improvement in sentiment following the decline in oil prices, although households and businesses continued facing relatively high borrowing costs. Manufacturing PMI improved modestly as easing energy costs supported business sentiment, while services activity remained comparatively resilient despite weaker consumer spending.
Inflation moderated during June as lower energy prices filtered gradually into consumer prices, while staying above the Bank of England’s 2% target, leading policymakers to maintain a cautious stance.
The Bank of England left Bank Rate unchanged at 3.75%, acknowledging that although energy prices had fallen significantly, broader commodity prices and supply chain pressures remained elevated.
UK equities posted positive returns during the month, supported by financials, industrials and consumer stocks. The Sterling strengthened modestly against the US dollar as declining inflation expectations improved confidence that monetary tightening may be nearing its peak, while remaining broadly stable against the euro.
Europe
Across the Euro area, economic activity remained subdued but showed tentative signs of stabilisation. Manufacturing remained under pressure with weak global demand and elevated production costs, although falling oil prices provided welcome relief for energy-intensive industries. Services continued outperforming manufacturing, helping prevent a broader economic contraction.
Inflation eased modestly during June but remained sufficiently elevated for the European Central Bank to maintain a restrictive monetary policy stance, raising interest rates by 25 basis points in its June meeting.
European equity markets advanced steadily through June, led by industrials, financials and consumer sectors. The euro traded within a relatively narrow range against the US dollar, supported by expectations that ECB policy would remain restrictive despite slowing growth.
Japan
Japan had one of the most important policy shifts of the month. The Bank of Japan lifted its benchmark rate to 1%, the highest in over 30 years, citing inflation pressures, a weak yen, and higher imported energy costs. The decision underscores Japan’s transition away from decades of deflation towards managing persistent inflationary pressures without derailing domestic growth.
Japanese manufacturing PMI showed a minor uptick, buoyed by stabilizing supply chains into Asian ports. However, the gains were capped by the chaotic state of global freight routes.
Japanese equities outperformed many global peers during the month, supported by continued corporate governance reforms, resilient corporate earnings and renewed international investor inflows. Exporters benefited from recovering global confidence despite lingering supply chain disruptions.
The yen remained relatively weak against the US dollar for much of June due to persistent interest rate differentials, although it recovered modestly during periods of reduced geopolitical uncertainty.
China
China remained the weakest among the major economies, with domestic demand continuing to disappoint despite government support measures. Manufacturing activity remained uneven as exporters navigated ongoing shipping disruption while benefiting from gradually improving external demand following the peace deal. Falling oil prices helped reduce input costs, although higher freight charges and elevated commodity prices ate into profit margins.
Chinese equity markets experienced mixed performance. Technology and consumer sectors remained under pressure from weak domestic spending, while manufacturers linked to exports showed improving sentiment as trade routes gradually reopened. Investors remained cautious regarding the broader growth outlook despite the improving geopolitical backdrop.
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The views and opinions expressed should not be construed as investment or financial advice. The information contained is for educational purposes only.