Overview
As we passed the summer solstice, the length of the US market rally showed no signs of shortening. Bears have long been out of hibernation, but are likely ready to go back to sleep as bulls continue to see very little red. Both the S&P 500 and Nasdaq 100 hit fresh highs, up 5.09% and 6.34% respectively. The continued slide in the dollar, however, remained a drag on performance in sterling terms, with the greenback having its worst half of a year since 1973. Elsewhere, Japan, UK mid-caps and European equities performed strongly, whilst avoiding the performance drag from the currency move.
The rally in equity markets came despite continued news flow from the White House and the Middle East. Although fragile, the ceasefire between Israel and Iran largely reversed the spike in oil prices seen in June, which raises the prospects of interest rate cuts in the second half of the year. Consequently, bonds rallied as government bond yields fell materially; however, the Federal Reserve (Fed) is in no rush to cut interest rates and there is still the possibility of the central bank remaining on hold for the year. The general trend of weakening economic data in the US may push the Fed towards interest rate cuts, but a more notable weakening in the labour market and inflation data will likely be required to convince the committee. There were bright spots in the data, with consumer inflation expectations dropping materially, consumer confidence jumping by the largest margin on record, and the Atlanta Fed’s Gross Domestic Product (GDP) tracker pointing to a comfortable return to growth in Q2.
The Bank of England (BoE) similarly held rates steady, but softer-than-anticipated inflation data has enabled the market to price in near certainty of an interest rate cut for August. Meanwhile, economic growth contracting for the first time in six months alongside weak labour market data also raised the likelihood of the BoE taking a more dovish stance. Greater prospects for interest rate cuts and improving business sentiment contributed to the continued rotation out of large caps and into mid-caps.
Looking ahead, the looming end to the 90-day tariff pause on 9 July will be front of mind for many, and Trump may be forced into another deadline extension if he is unable to come to an agreement with all major economies.
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Our weightings are based on sterling as a base currency.
United Kingdom (UK)
UK equities were somewhat mixed in June. The FTSE 100 edged down 0.05%, impacted by global macro uncertainty and weakness primarily in commodity-linked sectors. In contrast, the more domestically focused FTSE 250 rose 3.21%, supported by resilient services activity, improving business sentiment, and stabilising inflation dynamics.
Earlier in the month, Chancellor Reeves unveiled the contents of the UK’s first multi-year spending review since 2021. Key headline measures included 3% annual increase for the NHS, a rise in defence spending to 2.6% of GDP by 2027, and £30 billion in nuclear investment. Additional pledges included £39 billion for social housing, £15 billion for transport, and major allocations for prisons (£7bn), border security and R&D.
The BoE held rates steady at 4.25% in a 6-3 vote, with dissenting members pushing for a cut. Policymakers struck a cautious tone, highlighting weak growth and labour market softening but also warning of “two-sided risks” to inflation, citing geopolitical uncertainty and tariff threats. Headline inflation eased slightly to 3.4% in May, helped by lower transport and energy costs, whilst core inflation eased to 3.5%.
Economic growth contracted by -0.3% in April, the first monthly decline in six months, driven by higher utility costs, tax hikes, and early tariff effects. Industrial production fell 0.6%, whilst the current account deficit widened sharply to £23.5 billion, the highest since Q2 2024.
Labour market data was notably weak. The unemployment rate ticked up to 4.6%, and employee payrolls fell for a seventh straight month, down 109,000 in May. Despite total weekly earnings increasing 5.3%, rising payroll taxes and minimum wage hikes added further pressure within the job market.
The Purchasing Managers Index (PMI) composite rose to 50.7, signalling modest expansion, while manufacturing PMI improved to 47.7, its shallowest contraction in five months. Retail data softened, with sales up just 0.6% in May, down sharply from April’s surge. Consumer borrowing slowed to £0.9 billion, with credit card usage dropping significantly.
Despite near-term headwinds, consumer confidence edged higher and steady services activity suggests a resilient private sector.
United States (US)
The ‘Bull’s’ continued to have the upper hand in June, driving US markets to fresh records with the Nasdaq leading the charge. For the first time in two years, the S&P 500 experienced a ‘golden cross’, which is a positive technical indicator, historically preceding a 10% gain for the index in the following 12 months. Artificial Intelligence (AI) stocks performed strongly, with Nvidia and Microsoft seeing fresh highs, but positively, we saw a broadening of participation in the rally.
June was not without incident, with events both internal and external again rearing their head. Trump’s ‘bromance’ with Elon Musk spectacularly ended as Musk blasted ‘Trump’s Big Beautiful Bill’ as being a ‘disgusting abomination’. Trump fired back by threatening to cancel government contracts with Musk and, more recently, threatening to deport him! Encouragingly, trade tensions continued to recede with a framework deal with China in place, although the details were vague, and deals were progressing well with other nations before the 9 July deadline. In Iran, we saw the US participate in bombing nuclear facilities, but again, de-escalation followed, and markets rallied.
The Fed decided to hold rates steady in June for a fourth consecutive month but pencilled in two further rate cuts in 2025. They downgraded US growth forecasts and increased the inflation forecast to 3% for the year, blaming tariff effects. In response, Trump labelled Fed Chair Powell ‘very dumb’, ‘terrible’ and has three or four candidates already in mind to replace him when his term ends in May 2026. With regards to tariffs, the US Treasury collected $23bn in receipts for May alone.
There was mixed news on the inflation gauges for May, with the CPI reading coming in below the rate expected, but the Fed’s preferred measure the Personal Consumption Expenditures (PCE) index reading was slightly higher than forecast. Consumer Sentiment lifted as tariff concerns eased, but retail sales fell, and housing starts plummeted. Positively, the US added more jobs than expected in May and the unemployment rate remained steady at 4.2%.
Europe
European markets continued to outperform globally in 2025 on a year-to-date basis, though performance was mixed in June. Germany’s DAX fell -0.37%, trimming year-to-date gains to just under 20%, while France’s CAC 40 declined by -0.86%.
Defence spending dominated budget talks at the NATO summit, with European countries highlighting their commitment to boosting defence spending to 5% of GDP by 2035.
As expected, the European Central Bank (ECB) cut rates by 0.25% in June, but given the interest rate cycle progress, the ECB suggested they will likely pause at the next meeting. Fiscal policy is increasingly driving the European outlook, with Germany projected to issue an additional €1 trillion in bonds over the next decade, boosting growth but also raising long-term yield pressures.
Economic data was mixed in June. The Eurozone composite PMI held at 50.2*, suggesting sluggish but positive momentum. In Germany, manufacturing PMI rose to 49*, the highest since August 2022, with new orders and output improving. Sentiment indicators rose strongly, pointing to greater optimism, while German inflation eased to 2.0%, back at the ECB target for the first time since October 2024.
However, weak retail sales and slowing trade point to lingering external risks. The European Commission maintained its 0.9% GDP growth forecast for 2025, with fiscal stimulus expected to offset the tariff-related drag and support a slow recovery.
*Figures below 50 indicates a contraction in activity whereas figures above 50 indicates expansion.
Fixed Income
Fixed income generated positive returns as yields generally moved lower in June amid a broadly risk-off environment, driven by weaker economic data and signs of disinflation. Market participants have increasingly priced in more rate cuts, with the Israel-Iran conflict de-escalating rapidly and having little lasting impact on market sentiment.
US inflation data was encouraging, with Consumer Price Index (CPI) undershooting expectations and core PCE nearing the Fed’s 2% target. The Fed held rates steady, maintaining a cautious stance. However, they reaffirmed their forecast for two rate cuts this year and investor confidence is building around easing in the second half of 2026. Tariff-related inflation fears have softened for now, and consumer inflation expectations have declined meaningfully. Recent data shows signs of softening economic momentum, suggesting that upcoming price data may remain benign. This has contributed to renewed downward pressure on the dollar, which may persist given investor overexposure to US assets and a gradual shift in savings toward non-dollar markets.
In Europe, government bond yields remain stable, supported by foreign inflows into euro-denominated assets, despite a rise in bond supply due to increased defence spending. The added issuance acts as a constraint on further yield declines, yet growing global interest in European assets could provide a meaningful offset.
In the UK, the Bank of England’s tone was more dovish than expected, with inflation remaining stickier than in other regions and the government facing growing pressures. Labour’s potential shift toward looser fiscal policy, including a firmer defence commitment, complicates the fiscal outlook.
Meanwhile, in Japan, the central bank held rates unchanged and maintained its dovish tone despite stronger inflation. A slower pace of bond purchase reductions and plans to trim long-end issuance were announced to help stabilise the market as pressure for policy normalisation builds.
Asia and Emerging Markets (EM)
Emerging Markets (EM) outperformed in June, with the FTSE EM Index returning 4.7% in local currency terms, led by Japan’s Nikkei, which gained 6.82%. Stronger EM currencies further boosted returns for UK investors. For instance, Brazil delivered a 4.73% return in GBP terms, compared to just 1.33% in local currency, highlighting the favourable currency impact. Broad dollar weakness supported sentiment and capital flows across EM assets.
China reported stronger-than-expected May retail sales, supported by targeted subsidies. However, other indicators were mixed. Industrial production slowed due to faltering exports and weak domestic momentum, while labour market stress and a sharp drop in industrial profits weighed on sentiment. Although PMI readings improved, persistent deflationary pressures remain a concern, driven by declining input costs, excess industrial capacity, and ongoing global protectionist measures. Progress in US-China trade talks, particularly agreements on rare earths, provided a modest boost to sentiment.
Japan’s core inflation rose to 3.7% in May, the highest since January 2023, exceeding expectations. Nevertheless, the Bank of Japan left rates unchanged and is likely to maintain a dovish stance amid stalled trade negotiations with the US. Flash PMI moved further into expansion territory, supported by a recovery in manufacturing, while Q1 GDP was flat rather than contracting, easing earlier recession fears. The BoJ’s cautious approach and gradual bond purchase reductions reflect a continued focus on financial stability.
In Brazil, inflation surprised to the downside for the second consecutive month, helping to anchor expectations despite a 25-basis-point hike in the Selic rate to 15%. Policymakers signalled that rates would remain high for a prolonged period, keeping real interest rates close to 10%. In contrast, Mexico continued its monetary easing cycle, cutting rates by 0.50% to 8%. This marked the eighth consecutive cut, though real rates remain elevated at just under 4%. Weaker-than-expected retail sales add to the case for further easing.
Alternatives
Gold was largely unchanged over the month, despite some short-term volatility over the period, it finished June only marginally ahead of where it started. The Fed’s monetary policy stance remained a primary catalyst for gold’s performance during June. Investors closely monitored Fed signals regarding interest rate decisions, as expectations of potential rate cuts supported gold’s appeal as a non-yielding asset. Institutional demand from central banks continued to underpin gold’s performance throughout the month. While this demand was markedly lower than the previous quarter, in absolute terms it was still healthy at 24% above the five-year quarterly average. This sustained institutional buying provided a floor for prices during periods of market weakness.
The picture was markedly different for silver, up over 9%, palladium, down 7% and platinum, which climbed nearly 30%.
Oil prices also rose slightly over the month overall, with the war between Iran and Israel causing significant geopolitical volatility, which was immediately reflected in the oil price, albeit ultimately only briefly. The announcement of increased The Organization of the Petroleum Exporting Countries (OPEC+) production the previous month proved a drag on oil prices prior to the escalation, but prices climbed as missiles were fired, and intentions made clear. The main threat was the possibility of the Iranians barricading the Strait of Hormuz, which ultimately did not come to pass. Following US intervention on 22 June, prices declined sharply as traders breathed a sigh of relief that the Israel-Iran war did not escalate past a coordinated retaliation on a US base in Qatar.
Property
Nationwide reported that house prices dipped 0.8% on a monthly basis to £271,619 as the increase in stamp duty costs continued to impact on demand. Overall property prices were up 2.1% on a yearly basis, down from 3.5% last month.
A significant development occurred with the Government’s Mortgage Guarantee scheme, which ended on 30 June 2025, having previously supported high loan-to-value lending. However, the mortgage market showed resilience, with UK mortgage rates falling, making it a good time for homebuyers and existing homeowners to re-mortgage. This created a favourable environment for buyers despite the scheme’s conclusion. As such, the momentum in transactions seen in May appeared to continue into June, supported by improved mortgage availability and these competitive rates. The market concluded June with cautious optimism. Gross lending in the mortgage market is expected to increase by 11% in 2025, indicating continued lending appetite. While seasonal factors and policy changes created short-term uncertainty, the fundamental drivers of modest price growth and steady transaction levels remained intact heading into the summer months.
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Gross lending: The total sum of a loan that is repayable to a lender at the end of the term.
For more industry terms and definitions, visit our glossary here.
Important Information
All Index data figures are sourced by Morningstar and correct as at 30 June 2025, unless otherwise stated.
The value of investments or any income arising from them may fluctuate and are not guaranteed. Past performance is not necessarily a guide to future performance.