Quarterly market overview

Global shares

Global share markets made good gains in the June quarter, with the MSCI ACWI Index ‒ Net returning 4.1% in unhedged New Zealand dollar (NZD) terms. Much of the gains were driven by encouraging trade developments; notably US-China trade relations. The relationship between the world’s two largest economies sunk to new lows in April following US President Donald Trump’s ‘Liberation Day’ announcement; the day on which he revealed higher-than-expected ‘reciprocal’ tariffs on over 180 countries and territories, including China. However, the two sides, who for more than a month had exchanged tit-for-tat tariff hikes, came together for talks in Geneva in early May, with officials agreeing to significantly reduce tariffs against one another for 90 days, effective immediately. Washington agreed to lower tariffs on Chinese imports from 145% to 30%, while Beijing said it would reduce levies on US goods from 125% to 10%. The outcome of the talks, which far exceeded market expectations, contributed to a strong rally across risk assets as investors pinned their hopes on the two sides using the 90-day window to strike a more comprehensive trade agreement. Perhaps highlighting the lingering tensions between the two countries, both Washington and Beijing accused the other of violating the Geneva trade agreement ahead of a second round of talks in London in June. Ultimately, though, officials were able to agree on a framework on how best to implement the terms established in Geneva. We also saw the beginnings of a US-UK trade agreement and progress in US negotiations with many of its other trading partners, including the European Union, India, Taiwan and Vietnam. Limiting the gains were concerns over America’s fiscal position after Moody’s downgraded the country’s credit rating and heightened geopolitical risks; notably escalating tensions in the Middle East after Israel and the US bombed Iranian nuclear facilities.

At the country level, the benchmark US S&P 500 Index (10.6%), the tech-heavy NASDAQ Composite (17.7%) and the Dow Jones Industrial Average (5.0%) all recorded strong gains for the quarter. In fact, both the S&P 500 Index and the NASDAQ Composite hit record highs toward the end of the period; the S&P 500 Index also topping the 6,200 mark for the first time. Stocks were also higher in Japan (7.3%¹), UK (2.1%² ) China (1.3%³ ) and the Europe (1.0%⁴ ).

Australian shares made very strong gains, with the S&P/ASX 300 Accumulation Index closing the quarter up 9.5%. Much of the market’s advance was driven by positive developments in US-China trade relations. China is Australia’s largest trading partner and a key consumer of the country’s commodities. Stocks also benefited from the Reserve Bank of Australia (RBA)’s decision to cut interest rates in May; the central bank lowering the official cash rate by 0.25% to 3.85%. It was the RBA’s second rate cut this year and came amid further evidence that price pressures continue to ease. Speaking after the meeting, RBA Governor Michele Bullock flagged the prospect of additional rate cuts if inflation remains sustainably within the Bank’s 2-3% target range. Bullock also revealed that officials had considered cutting rates by 0.50% (to 3.60%). The implication that the RBA’s thinking had shifted from gradual rate reductions to a willingness to cut more aggressively if needed saw the market move to price in up to three additional rate cuts by the end of the year. More broadly, the market benefited from strong gains across most of the ‘Big Four’ banks – notably index heavyweight Commonwealth Bank of Australia, which returned more than 22% for the quarter – and encouraging Chinese growth.