Global equity markets continued their solid upward trend from the ‘Liberation Day’ drawdown, with leadership broadening well beyond US mega-caps. This was despite ongoing geopolitical tensions in the Middle East, a set-back for President Trump’s tariffs, and ongoing uncertainty on the likelihood of interest rate cuts in the US. The MSCI ACWI (NZD Hedged) was up 1.4% for the month, and is up over 20% on a rolling 1-year basis. The NZ dollar was slightly weaker versus the US dollar meaning the MSCI ACWI (NZD unhedged) was up 2.1% (+16.0% rolling 1-year). Global bonds delivered a solid return (+1.3% hedged to NZD) with yields moving lower on heightened uncertainty, the US 10-year yield fell below 4% into month end. NZ Bonds slightly underperformed global with a 1.0% return with yields moving lower across the maturity curve.
Geo-politics remained front of mind for investors with the US holding centre stage. The US Supreme Court ruled President Trump did not have the authority to impose the 2025 reciprocal tariffs via executive orders. Middle East tensions also built up and at the end of the month combined US-Israeli forces attacked Iran who responded in kind. Economic data remained solid in the US with manufacturing and services surveys holding firm. Inflation cooled further in the US with core inflation of 2.5% at its lowest level since March 2021. Headline non-farm payrolls were weaker than expected, falling 92,000 versus expectations of a 60,000 increase. Europe is one area where inflation is very close to the long-term target of 2%, and the economic growth outlook continued to gather positive momentum. The UK is still battling an inflation headache and short-term interest rates there remain at 3.75%.
Sector leadership yet again came from the cyclical energy and materials sectors, with utilities and consumer staples also outperforming. Technology stock prices struggled during the month as illustrated by the NASDAQ index falling 3.4%. NZ (+2.3%) and Australian (+3.7%) equities were both middle of the pack in terms of regional performance with the UK and Japanese markets up 6.7% and 10.4% respectively. Emerging markets (+5%) continued to do well and over the last 12 months they have delivered roughly double the returns of their ‘developed market’ counterparts.