The June quarter was characterised by uncertainty and volatility, with some of the most significant market movements seen in recent years, excluding the extraordinary period during COVID-19. The quarter started with the April 2nd ‘Liberation Day’, on which President Trump announced tariffs on all US trading partners on a scale not seen since the famous 1920s Smoot-Hawley tariffs, which contributed to the Great Depression.
Unsurprisingly, this triggered an immediate market sell-off of more than 20% for the US S&P 500 index, which, along with a sell-off in the US dollar and US Treasury bonds, led President Trump to pause the implementation of these tariffs for 90 days pending negotiations.
Markets have a habit of overreacting to negative and positive news, even more so when it is combined with a level of uncertainty as to what the future might look like. As it became clear that trade deals would be negotiated, it led to a strong run in share markets after bottoming in early April, with the S&P 500 rising 10.9% in US dollars during the quarter, and nearly 30% from the bottom of the market on April 7.
The strongest-performing markets during the quarter were in East Asia, buoyed by renewed investor enthusiasm for the technology sector and the ongoing AI thematic. This tailwind particularly benefited companies central to the global AI supply chain. South Korea stood out with a remarkable rebound, posting a 28.4% gain for the quarter. After several years of underperformance, the market rallied strongly on the back of improved political stability and surging demand for AI-related hardware such as memory and semiconductors chips, where Korean giants like Samsung Electronics and SK Hynix are global leaders. Taiwan and Japan were also strong performers, up 20.1% and 12% respectively and benefitting from similar drivers.
The Australian market delivered a strong performance, rising 9.5% for the quarter, driven by solid gains in the banking and technology sectors; however, it was not immune to volatility resulting from the Trump tariffs. Despite Australia’s relatively limited direct trade exposure to the US, it ultimately benefited from easing global trade tensions and a rebound in overall risk sentiment.
At its May meeting, the Reserve Bank of Australia (RBA) cut the cash rate target from 4.1% to 3.85%. Inflation in Australia has continued to ease, and while some economists have expressed concerns about a potential second wave, current data suggests inflation remains contained, now back within the RBA’s 2–3% target range.
The US Federal Reserve maintained the Federal Funds rate, citing ongoing uncertainty about the inflationary impact of tariffs. Markets have begun to scale back expectations for rate cuts in 2025, as Fed Chair Jerome Powell remains cautious about easing policy, despite mounting political pressure from President Trump.
Government bonds experienced some volatility in April but remained relatively stable over the quarter, despite a dynamic macro environment. On the positive side, yields have consistently remained above inflation in recent months, making real returns on government bonds more attractive than they have been in decades. However, growing concerns around the scale and trajectory of US government debt have started to weigh on sentiment. With limited political will on both sides to rein in spending, the issue continues to escalate. The Trump administration’s proposed budget, dubbed the “One Big Beautiful Bill”, does little to address the imbalance between tax revenue and expenditure.
Despite subdued confidence, economic and market fundamentals have demonstrated notable resilience. While downside risks remain and may trigger periods of volatility, several supportive factors continue to underpin global economic growth and market performance. Should an agreement be reached in the Ukraine conflict we consider that it will be a positive for security and markets in general, and commodities in particular.
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Regards,
Marshall Brentnall
Chief Investment Officer
