By Jan Faure
Global markets were mixed in June with US equities continuing their upward trajectory while equity markets in Europe and Asia mostly declined. Wall Street gained amid softer-than-expected US inflation data and a reassurance that the Federal Reserve will still cut interest rates this year. The S&P 500 and Nasdaq Composite advanced 3.5% and 6.0% respectively led by strong gains in major technology companies, particularly those exposed artificial intelligence (AI).
At its June meeting the Federal Reserve (Fed) held rates steady and said it expects only one rate cut this year. Later in the month, core personal consumption expenditure (PCE) data, the Fed’s preferred inflation indicator, slowed to 2.6% YoY (May) from a 2.8% YoY in April, the lowest annual PCE rise since March 2021. This, together with a series of soft US economic data, revived hopes for two rate cuts this year beginning September.
In Europe, the Euro Stoxx 50 declined 1.8% amid investor uneasiness surrounding political uncertainty on the continent. The outcome of the European parliamentary election drove French president Macron to announce a snap election in France. Market concerns about the possible outcome introduced significant volatility in European equity markets. France’s CAC slumped 6.4% while Germany’s DAX shed 1.4% for the month.
The European Central Bank (ECB) cut rates in June by 25bps as expected but signalled a cautious approach to further policy action. Policymakers noted that price pressures remain strong, and inflation is likely to stay above target well into next year. The ECB stressed that interest rates will be kept sufficiently restrictive for as long as necessary to ensure inflation returns to the ECB’s 2% target.
In Asia, the Nikkei 225 gained 2.8% as the weak yen boosted the outlook for Japan’s export-orientated companies. China’s equity markets again disappointed as economic and policy uncertainties in China continued to weigh on investor sentiment. China’s Shanghai Shenzen CSI 300 declined 3.3% while Hong Kong’s Hang Seng fell 2.0% for the month.
Global fixed income was largely flat for the month with investment grade bonds gaining 0.1%. While bonds have underperformed year to date, markets are confident that the next move for major developed market central banks is to ease policy rather than tighten. As a result, the medium-term outlook for fixed income still looks attractive.
Overall, the second quarter added to the positive momentum of the first, with equity markets delivering another set of positive returns for investors. This was driven by strong earnings reports and easing inflation, while softer economic data reflects the effects of a prolonged period of tight monetary policy. Meanwhile, US equities have continued their upward trajectory, driven by significant contributions from major technology companies, particularly those exposed to AI.
Table 1: Global Indicators – Local reporting currencies
