May 2025 was a very strong month for global equities as the remarkable rally from the early April “Liberation Day” sell-off continued almost unabated. A number of regional equity markets traded near to or above record highs, many of which were established earlier in 2025 before the playing field for global trade was altered. Global equities were up over 5%, while bonds fell slightly as longer dated bond yields moved higher despite most central banks maintaining a dovish bias. The MSCI ACWI (NZD Hedged) was up 5.6% and is up over 12% on a rolling 1 year basis. The NZ Dollar moved slightly higher against most of the majors (up to just under U$0.6 versus the US Dollar), meaning the MSCI ACWI Index (NZD unhedged) was up 5.2% (+17% rolling 1-yr). Global bonds posted a slight fall over the month of May, the Bloomberg Global Agg Index (NZD Hedged) fell -0.4% for the month, as did the NZ Composite Bond Index.
A key driver of the equity market rally was the US and China announcing a reduction in tariff levels between the two countries, well below levels first outlined by President Trump on 2nd April. Similar de-escalations were announced with the EU. There was also internal legal pushback on the new tariffs, with the US Court of International Trade halting most of the newly announced tariffs - a decision that was immediately appealed. The Volatility Index (“VIX” or “fear index”) had spiked to crisis levels in early April, but by the end of May it was back under 20, below the average level for the last 5 years.
Global interest rates moved higher over May, particularly at the long end of the curve. Government bond auctions in Japan and US were weak, and the decision by rating agency Moody’s to downgrade US debt to one notch below its top rating contributed to lower bond prices. US 10-year yields reached 4.61% intra-month (having started May at 4.16%) before ending at 4.41%.
Economic data took a back seat to announcements on tariff negotiations, and with the uncertain future on tariff levels, most backward looking ‘hard data’ prints were deemed less useful than in more normal times. US non-farm-payrolls were soft, but the unemployment rate remained steady at 4.2%. US ISM PMI’s in manufacturing and services remained below 50. Inflation in the Euro area fell below 2% to support expectations for further cuts to short term interest rates in Europe.