The Roundup – June 2025
Markets Reverberate
In contrast to April and May which were almost entirely dominated by tariff talk, June provided much more variety for market participants to digest, particularly as the impacts of expanding regional conflicts and US tax and trade policies added to the uncertainty surrounding monetary policy and inflation levels.
Tensions in the Middle East rapidly escalated as long-time foes Israel and Iran exchanged blows. Hostilities further intensified when the US became directly involved, striking Iran. However, a ceasefire between the two regional powers eased tensions and put an end to the 12 days of fighting.
With Iran as OPECs third largest crude oil producer and the Strait of Hormuz (which the Iranian parliament approved the closure of) accounting for approximately 20% of the world’s total oil consumption, concerns around the disruption to oil production and the impact on the global supply rose in tandem with the hostilities.
Both WTI and Brent crude oil futures saw major moves over the month, with the initial attacks driving prices materially higher, peaking around US$73 and US$77 a barrel respectively, (roughly US$10/bbl higher than a month earlier) before easing on the news of a truce and that energy infrastructure had not been damaged.
Events in the Middle East reverberated across markets. Global equities fell as investors moved out of risk assets, flocking to safe havens to wait out the storm. Gold hit an all-time high during the month, while bonds experienced countering effects - oil supply pressures supported higher yields, while the flight to safety encouraged yields lower.
Sentiment towards the USD and its status as the world’s reserve currency has softened, with the dollar hitting a new low for the year just prior to the Israel – Iran conflict. The USD has fallen around 10% against a basket of developed currencies since the start of the year with the prospect of higher US inflation and slower growth dimming its appeal.
However, the USD stayed true to it’s safe-haven label, surging against several currencies during the almost two-week long ariel war, as investors looked for less risky assets for harbour. Other traditional safe-haven currencies such as the Swiss Franc (CHF) also lifted albeit to a lesser degree than the US dollar.
US data released during the month showed inflation (consumer and producer price indexes) remained contained in May, coming in under forecasts, while GDP cooled posting -0.5% for Q1 2025, the first contraction since mid-2022. The limited increase in inflation and deterioration in economic output added weight to the call for US rate cuts.
One vocal proponent was President Trump, who repeated criticisms of the Federal Reserve Chair for not already cutting interest rates. His comments around naming Chairman Powell’s successor soon (his term ends in May 2026) raised concerns around undermining the independence of the Fed as the move would effectively create a shadow Chairman.
At their June meeting the Fed left interest rates unchanged at 4.25%, reiterating the increased uncertainty from the changes to US trade, immigration, fiscal and regulatory policies. While the net effect is thought to be inflationary, the nature of the lift was debated - both a one-off transitory increase and the possibility of more persistent inflation.