The quarter kicked off in April, with markets experiencing significant volatility following President Trump’s initial trade tariff announcement, which sharply increased economic uncertainty and led to market declines; however, markets recovered after the policy reversal a week later.
In May, equity markets experienced a significant recovery from the volatility. Despite ongoing policy uncertainty, global shares led the advance, marking a strong performance after one of the most volatile trading periods since the pandemic. This continued into June, closing out the month on an all-time high that seemed unattainable at the beginning of the quarter. Not even the unexpected attack on Israel from Iran in the middle of the month was able to derail the positive momentum.
The Reserve Bank of New Zealand’s rate cuts of 25 basis points in April and May now see the OCR at 3.25%. Banks proactively reduced mortgage rates to provide additional support for local markets, driving a surge in home loan applications and supporting domestic equity performance. However, fixed-income markets struggled globally, indicating concerns about inflation and economic growth.
Economists described the recovery as “K-shaped,” where asset investors benefited from rising markets while non-investors faced increasing financial strain. This divergence was evident in spending patterns, with discretionary purchases weakening even as equity markets rallied. Globally, the economic landscape was complex, with US manufacturing struggling but tech stocks soaring, European sentiment improving, and Asian markets facing unique challenges, including Chinese deflation and Japanese inflation concerns. Despite the broad recovery in equity markets, underlying economic fundamentals remained mixed.
Global equity markets overview
US technology and communication stocks, including Alphabet, Microsoft, Netflix, Nvidia, and Meta, regained prominence, driving US markets to new highs. Nvidia’s performance was especially strong, with a 17% increase in June following a robust earnings report. Conversely, Tesla’s shares declined amid public disputes between President Trump and CEO Elon Musk. The Federal Reserve maintained steady interest rates, reinforcing its independence despite political pressure.
European markets, after years of lagging behind the US, matched or surpassed American performance earlier in the year but underperformed in June. Germany and France experienced weakening economic sentiment and declining inflation, while Italy saw modest improvements in its economic outlook. Eurozone GDP growth remains sluggish, projected at just 1% for 2025, underscoring the region’s persistent economic challenges.
In Asia, China’s growth outlook is cautiously optimistic, with government stimulus expected to help achieve around 5% growth in 2025, though ongoing tariffs and deflationary pressures pose risks. Hong Kong’s Hang Seng index performed well despite these headwinds. Japan, meanwhile, faced economic contraction in early 2025. Like China, its outlook is closely tied to the resolution of trade disputes, particularly due to the exposure of Japanese automakers to US demand.
Australasian market overview
The Australian and New Zealand share markets followed the positive momentum seen globally, with June marking notable gains, especially for Australian banking stocks like the Commonwealth Bank of Australia. Australia’s economic indicators remained robust, highlighted by a resilient labour market and a low unemployment rate of 4.1%. Conversely, New Zealand’s economy continued to show signs of sluggishness, though there were some encouraging signals, such as the stabilisation of building work after a prolonged period of decline. While another immediate rate cut was not anticipated, market analysts expected the Reserve Bank of New Zealand to lower rates further before the end of the year to help stimulate activity. These monetary policy adjustments, combined with global currency trends, contributed to the New Zealand dollar’s positive movement against the US dollar and Japanese yen. However, it remained flat against the US currency for the year and underperformed against most other major currencies.
Investor behaviour reflected the shifting economic landscape, with market participants taking profits on stocks like Mainfreight following strong gains in May, resulting in the company’s fall among the top New Zealand stocks by June. In contrast, more defensive and interest-rate sensitive entities—such as Spark, Meridian, and Auckland Airport—outperformed, benefiting from May’s rate cut and the anticipation of additional monetary easing. This performance pattern highlighted the impact of interest rate expectations on equity market dynamics, particularly in sectors that are sensitive to borrowing costs. Overall, the Australasian markets demonstrated resilience and adaptability amid a backdrop of mixed economic data and ongoing monetary policy adjustments, with investors showing both caution and optimism in their asset allocation decisions.
Outlook
Amid renewed market optimism, investors have adjusted their expectations, now anticipating fewer interest rate cuts in the US for 2025. As a result, share market valuations appear increasingly expensive compared to historical norms. Despite this buoyancy, the mixed nature of economic data suggests a need for caution and realistic short-term expectations.
Long-term prospects for artificial intelligence have contributed to positive sentiment, although tangible benefits are so far limited to a handful of sectors, such as chip manufacturing and data centres. Upcoming deadlines regarding tariff exemptions may introduce additional volatility in both share and bond markets, particularly concerning trade and inflation.
Given these factors, maintaining diversification and avoiding aggressive investment positions remains prudent, at least until greater clarity emerges regarding growth rates, inflation trends, and the resolution of ongoing tariff negotiations.
Economic Commentary: Quarter end 30 June 2025
The quarter kicked off in April, with markets experiencing significant volatility following President Trump’s initial trade tariff announcement, which sharply increased economic uncertainty and led to market declines; however, markets recovered after the policy reversal a week later.
In May, equity markets experienced a significant recovery from the volatility. Despite ongoing policy uncertainty, global shares led the advance, marking a strong performance
after one of the most volatile trading periods since the pandemic. This continued into June, closing out the month on an all-time high that seemed unattainable at the beginning of the quarter. Not even the unexpected attack on Israel from Iran in the middle of the month was able to derail the positive momentum.
The Reserve Bank of New Zealand’s rate cuts of 25 basis points in April and May now see the OCR at 3.25%. Banks proactively reduced mortgage rates to provide additional support for local markets, driving a surge in home loan applications and supporting domestic equity performance. However, fixed-income markets struggled globally, indicating concerns about inflation and economic growth.
Economists described the recovery as “K-shaped,” where asset investors benefited from rising markets while non-investors faced increasing financial strain. This divergence was evident in spending patterns, with discretionary purchases weakening even as equity markets rallied. Globally, the economic landscape was complex, with US manufacturing struggling but tech stocks soaring, European sentiment improving, and Asian markets facing unique challenges, including Chinese deflation and Japanese inflation concerns. Despite the broad recovery in equity markets, underlying economic fundamentals remained mixed.
Global equity markets overview
US technology and communication stocks, including Alphabet, Microsoft, Netflix, Nvidia, and Meta, regained prominence, driving US markets to new highs. Nvidia’s performance was especially strong, with a 17% increase in June following a robust earnings report. Conversely, Tesla’s shares declined amid public disputes between President Trump and CEO Elon Musk. The Federal Reserve maintained steady interest rates, reinforcing its independence despite political pressure.
European markets, after years of lagging behind the US, matched or surpassed American performance earlier in the year but underperformed in June. Germany and France experienced weakening economic sentiment and declining inflation, while Italy saw modest improvements in its economic outlook. Eurozone GDP growth remains sluggish, projected at just 1% for 2025, underscoring the region’s persistent economic challenges.
In Asia, China’s growth outlook is cautiously optimistic, with government stimulus expected to help achieve around 5% growth in 2025, though ongoing tariffs and deflationary pressures pose risks. Hong Kong’s Hang Seng index performed well despite these headwinds. Japan, meanwhile, faced economic contraction in early 2025. Like China, its outlook is closely tied to the resolution of trade disputes, particularly due to the exposure of Japanese automakers to US demand.
Australasian market overview
The Australian and New Zealand share markets followed the positive momentum seen globally, with June marking notable gains, especially for Australian banking stocks like the Commonwealth Bank of Australia. Australia’s economic indicators remained robust, highlighted by a resilient labour market and a low unemployment rate of 4.1%. Conversely, New Zealand’s economy continued to show signs of sluggishness, though there were some encouraging signals, such as the stabilisation of building work after a prolonged period of decline. While another immediate rate cut was not anticipated, market analysts expected the Reserve Bank of New Zealand to lower rates further before the end of the year to help stimulate activity. These monetary policy adjustments, combined with global currency trends, contributed to the New Zealand dollar’s positive movement against the US dollar and Japanese yen. However, it remained flat against the US currency for the year and underperformed against most other major currencies.
Investor behaviour reflected the shifting economic landscape, with market participants taking profits on stocks like Mainfreight following strong gains in May, resulting in the company’s fall among the top New Zealand stocks by June. In contrast, more defensive and interest-rate sensitive entities—such as Spark, Meridian, and Auckland Airport—outperformed, benefiting from May’s rate cut and the anticipation of additional monetary easing. This performance pattern highlighted the impact of interest rate expectations on equity market dynamics, particularly in sectors that are sensitive to borrowing costs. Overall, the Australasian markets demonstrated resilience and adaptability amid a backdrop of mixed economic data and ongoing monetary policy adjustments, with investors showing both caution and optimism in their asset allocation decisions.
Outlook
Amid renewed market optimism, investors have adjusted their expectations, now anticipating fewer interest rate cuts in the US for 2025. As a result, share market valuations appear increasingly expensive compared to historical norms. Despite this buoyancy, the mixed nature of economic data suggests a need for caution and realistic short-term expectations.
Long-term prospects for artificial intelligence have contributed to positive sentiment, although tangible benefits are so far limited to a handful of sectors, such as chip manufacturing and data centres. Upcoming deadlines regarding tariff exemptions may introduce additional volatility in both share and bond markets, particularly concerning trade and inflation.
Given these factors, maintaining diversification and avoiding aggressive investment positions remains prudent, at least until greater clarity emerges regarding growth rates, inflation trends, and the resolution of ongoing tariff negotiations.
25 July 2025