June Commentary
GLOBAL MARKETS
Further compromises from President Trump on tariffs fuelled a strong rally across all developed markets. The US led the way, but all four developed markets had strong, positive returns.
US MARKETS
Rose strongly on the back of tariff flipflops
US equities posted a strong month, led by technology. The Nasdaq surged 9.6%, outpacing the S&P500. US small caps were positive, but lagged the S&P500. Growth as an investment style significantly outperformed value. Economic data remains confusing, with a weak headline number for 1Q25 GDP (-0.2%) heavily distorted by the impact of tariffs on inventories and imports. A more reliable GDP measure, excluding these two factors, pointed towards 1.9% growth. Market sentiment was dominated by the twists and turns over tariffs, both from the administration and the courts.
Up 6.2% (US 500)
UK MARKETS
Moved higher on potential US-UK trade deal
UK equities took their lead from the US, with the FTSE100 up and mid and small caps posting even stronger returns. The FTSE250 rose 5.8% and is now in positive territory year-to-date. Whilst the economic data was slightly better than expected, against low expectations, the public finances remain in poor health, with borrowing continuing to exceed expectations. Consumer sentiment remains depressed, with the prospect of more tax rises later this year. A trade deal with the US was agreed, clawing back some of the economic damage from the initial US proposals.
Up 3.6% (UK All Share)
EUROPEAN MARKETS
Despite US-EU trade tensions, markets were positive
European equities were positive overall for the month. Elsewhere, growth as an investment style outperformed value. The rally meant that all of April’s sharp losses have been recovered, with the index now up 8.1% year-to-date. Market sentiment was further boosted by a 90-day extension to the negotiations of a EU-US trade deal, but the situation remains fragile, given the challenges of reaching a deal and Trump’s antipathy towards the EU.
Up 4.0% (Euro 600 Index ex UK)
JAPAN MARKETS
Strong gains on the back of positive tariff news
Japanese equities recorded further strong gains in May, supported by some progress in US trade negotiations and the perceived safe-haven status of Japan amid US-China tensions. Topix is now ahead year-to-date and growth as an investment style outperformed value. This was despite generally weaker economic data and some very unhelpful developments in the bond market. Long duration yields rose significantly, with 10yr yields spiking from 1.31% to 1.50%, adding significantly to the challenges facing the Bank of Japan.
Up 5.0% (Japan Index)
Key Points
• The US dollar remained volatile, with sentiment linked to the ebb and flow of tariff negotiations.
• The yen was little changed over the month, but like the dollar, saw elevated intra-month volatility.
• Sterling strengthened just under 1% against the US dollar, reaching the highest level since early 2022, as the market re-evaluated the prospects for further interest rate cuts relative to the US.
• After surging in value in each of the last two months, the euro index remained relatively unchanged in May.
Key Points
• Bonds were negative over the month, but this masked a large divergence within the bond market. Sovereign bonds were negative, but High Yield Credit posted a strong positive return.
• UK gilts were highly volatile and weak, reflecting the global move in government bond yields and the continued deterioration in UK public finances.
• Markets continued to re-evaluate sovereign risk, with longer duration US and Japan yields moving up significantly. The moves in the very long duration Japanese yields were particularly concerning.
• Treasuries fell all across the curve, with short end impacted by reduced rate cut expectations, and the long end by the size of the deficit and the potential impact for future issuance of bonds as a result of the US budget and tariffs.
• The best performing areas was high yield, which took its cue from the rally in equities. Barclays BBG Global High Yield rose 1.66%.