Markets surged in June on the back of US fiscal expansion and a renewed US-China trade truce.
The US dollar weakened, boosting risk assets and commodity-linked trades, while the Fed held rates steady to let fiscal policy do the heavy lifting.
South African equities gained, buoyed by stronger global commodity prices and expectations of further local rate cuts amid low inflation.
Global markets extended their rally in June, with investors buoyed by a decisive shift in US fiscal policy and renewed optimism around US-China trade relations. These two developments formed the core drivers of market performance during the month, overshadowing geopolitical flare-ups elsewhere.
The most significant catalyst came from Washington, where President Trump’s long-anticipated “Big Beautiful Bill” cleared both chambers of Congress. The legislation extends the 2017 corporate tax cuts, adds targeted stimulus for tariff-exposed industries, and relaxes regulatory hurdles for capital investment.
Despite concerns from the Congressional Budget Office and the Committee for a Responsible Federal Budget — who project the bill could add $3.1 trillion to the federal deficit over the next decade — markets responded positively to its pro-growth message.
Equity indices rallied into month-end, with the S&P 500, NASDAQ, and Dow Jones all posting strong gains. Investors appeared to welcome the fiscal support; particularly as monetary policy remained on hold.
Indeed, the Federal Reserve made no changes to interest rates in June, signalling a willingness to let fiscal measures take the lead while monitoring inflation and labour market dynamics. The Fed’s steady hand added to the sense of policy stability, which markets took as a green light for risk-taking.
Trade developments provided a second major tailwind. US and Chinese negotiators met in London and announced the reinstatement of a 90-day tariff truce — the first material progress in trade relations in more than a year.
China also agreed to ease export restrictions on key rare-earth minerals, a move that was well received by global manufacturers and tech firms alike. The prospect of reduced trade friction lifted sentiment across developed and emerging markets, particularly in Asia, and helped boost industrials, semiconductors, and logistics stocks globally.
Risk appetite was clearly reflected in asset returns. Developed market equities rose by 4.4% in June, with the US leading at +5.1% and Europe up 2.1% (all returns in USD). Emerging markets outperformed, gaining 6.0% over the month, supported by both equity and currency appreciation as the weaker dollar continued to provide a tailwind. EM currencies, particularly in Asia and Latin America, benefited from renewed capital inflows and improving trade dynamics.
By contrast, geopolitical risks in the Middle East had only a limited impact on market direction. A brief 12-day conflict between Israel and Iran in early June, which included targeted airstrikes and limited cyber retaliation, did prompt a temporary rise in oil prices — with Brent crude touching $85 per barrel — but a swift ceasefire helped prevent broader regional escalation. Markets quickly looked past the event, focusing instead on structural factors like policy, earnings, and trade.
In currency markets, the US dollar continued its decline. The DXY index softened further on expectations that the growing fiscal deficit could reduce the dollar’s appeal as a safe-haven asset, particularly as geopolitical risks eased, and global capital flows rotated toward risk assets. This benefited emerging market currencies and added further momentum to commodity-linked trades.
Chart 1: Tax cuts are the primary reason that debt will increase (Source: Vox, US Congressional Budget Office)
Chart 2: Dollar Decline (Source: Alpine Macro)
In May, headline inflation rose to 2.4% year-on-year, up slightly from April’s 2.3%, driven by higher shelter and energy prices. Core inflation remained stable at 2.8%, suggesting that underlying price pressures are not yet fully resolved. The Federal Reserve left its benchmark rate unchanged at 4.25%–4.50% in June, opting to maintain a cautious stance as it assesses the economic impact of recent fiscal policy shifts and global trade uncertainty.
Meanwhile, the U.S. economy contracted at an annualized rate of 0.5% in the first quarter of 2025, deeper than the initial estimate of a 0.2% decline, largely due to downward revisions in consumer spending and net exports.
Inflation in the Eurozone ticked up to 2.0% year-on-year in June, following an eight-month low of 1.9% in May, driven by persistent service sector inflation. In response, the European Central Bank cut interest rates by 25 basis points at its June meeting, lowering the deposit rate to 2.00% as it downgraded its inflation and growth projections. First-quarter GDP growth in the Eurozone was revised upward to 0.6%, boosted by strong performance from Ireland and a better-than-expected result from Germany.
However, unemployment in the bloc rose slightly to 6.3% in May, up from April’s 6.2%. In the United Kingdom, inflation eased to 3.4% in May, and the Bank of England voted 6–3 to hold the policy rate steady at 4.25%. The unemployment rate in the UK edged up to 4.6%, while the new government released its multi-year Spending Review, adopting a zero-based budgeting approach that aims to balance fiscal restraint with increased investment in key public services.
China’s consumer prices declined by 0.1% year-on-year in May, continuing a mild deflationary trend for the fourth straight month. The People’s Bank of China left lending rates unchanged during its June meeting, following a small rate cut in May, as policymakers weighed support for growth against ongoing trade tensions.
Economic momentum slowed, with first-quarter GDP expanding by 1.2% on a seasonally adjusted basis, down from 1.6% in the previous quarter. Urban unemployment declined modestly to 5.0% in May, reflecting some stability in the labor market. In Japan, headline inflation eased to 3.5% in May from 3.6% in April, marking the lowest level since November 2024. The Bank of Japan kept its short-term interest rate unchanged at 0.5% in June, maintaining its highest policy rate in over 15 years as it monitors persistent core inflation pressures.
South African equities moved in step with global markets in June, with the JSE All Share Index gaining 2.2% for the month. Performance was broad-based, as Financials rose 1.0%, Industrials advanced 2.4%, and the Resources sector led with a 4.8% increase. Local bonds also performed strongly, returning 1.5%, buoyed by a stable inflation backdrop and growing expectations of further policy easing. In currency markets, the rand appreciated by 1.4% against the US dollar, but lost ground to the euro and pound, weakening 2.3% and 0.5% respectively.
Domestic economic data released during the month painted a mixed picture. The S&P Global South Africa PMI declined marginally to 50.1 in June from 50.8 in May, indicating stagnation in private sector activity. While employment improved, output and new orders softened, and business confidence slipped to its lowest level in nearly four years. The manufacturing sector showed some resilience, with the Absa PMI ticking up to 48.5—its second-highest level this year—helped by improved demand and easing input costs, though overall activity remained below the neutral 50-point mark.
On the inflation front, May’s consumer price index, published in mid-June, held steady at 2.8% year-on-year, comfortably within the SARB’s 3–6% target range. Importantly, inflation expectations for 2025 declined to 3.9%, the first sub-4% print in more than four years.
This supported market speculation that the Reserve Bank could continue its easing cycle in the coming months, following its 25-basis point rate cut in May. Meanwhile, the S&P Global reaffirmed South Africa’s sovereign credit rating (BB-/B) while highlighting the need for faster, more durable growth to support future upgrades.
Our core outlook remains constructive on risk assets, particularly global equities. While macro uncertainty persists, the combination of fiscal expansion in the US, easing trade tensions, and a weakening US dollar provides a supportive backdrop for pro-growth positioning. We continue to favour equities over bonds and maintain an underweight allocation to cash, reflecting our conviction that the opportunity cost of staying on the sidelines remains elevated.
Within global equities, the US remains our preferred market. Strong consumer fundamentals, improving corporate margins, and renewed fiscal stimulus reinforce our belief in the resilience of the US economy. We are maintaining a structurally overweight position here.
In contrast, we remain underweight Europe, where structural impediments, weak productivity dynamics, and political fragmentation continue to limit upside potential. In terms of portfolio orientation, we have tilted further toward cyclical and pro-growth exposures. The combination of falling real yields, a softening dollar, and policy-driven demand is bullish for commodities. We have increased our allocations to both gold and industrial metals, which we see as effective hedges against macro instability and key beneficiaries of global reflation dynamics.
Importantly, we are beginning to see a more constructive setup for South Africa. A weaker US dollar and rising global commodity prices are meaningful tailwinds for the domestic economy. In light of this shift, we are reallocating a portion of our global equity exposure—particularly from developed markets outside the US—into South African equities. We believe this move will allow us to take advantage of a potentially improving local macro environment. Our domestic equity positioning remains selective, with a focus on companies capable of delivering earnings growth in a still-constrained fiscal landscape.
We remain underweight South African government bonds due to long-term structural concerns, but we continue to favour high-quality, secured credit. Our moderate cash position gives us the flexibility to respond quickly to market dislocations or tactical opportunities.
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