June financial outlook

The news from the US has shifted slightly from debilitating tariffs to martial law on the country’s West Coast. There is still much to play out before we can see acceptable stability in global markets. While the US administration bounces from one crisis to another, there has been movement from many of the world’s central banks, including ours. The RBA reduced the official cash rate from 4.1% to 3.85%. A little under expectations but still welcomed by markets, businesses, and consumers. This cut should support economic activity on our shores and make borrowing more appealing.

The US has two forces pulling each other. The ISM reading of 51.6 indicated ten months of expansion in the services sector, which is good news. The US economy is service-oriented, and these numbers illustrate continued strength. On the other hand, building permits have declined to the lowest level in almost a year. This troubling sign indicates that persistently higher mortgage rates are weakening the housing sector.

In Europe and the UK, it is a similar picture. The Bank of England announced a modest interest rate cut from 4.5% to 4.25%. While the cut was seen as a positive sign, the decision to do so wasn’t unanimous. Germany was the region’s big mover with economic sentiment on the up by over 39 points. As Europe’s largest manufacturing economy, this has given rise to optimism in the Eurozone. This is positive data; however, retail sales in the Eurozone did dip, and inflation unexpectedly spiked to 3.5% in the UK.

The Chinese Government continues its incremental stimulus measures, and the People’s Bank of China cut 1-year and 5-year loan prime rates. We feel further stimulus measures are likely, and this will become apparent when the uncertainty around tariffs finally abates. Japan’s economy declined by .2% in the last quarter due to trade issues, highlighting that while there are signs of promise globally, investors must remain vigilant and adapt to change.

We are continuing to be cautious. There are indicators that growth is persisting, but the economic data remains mixed, and there is still an unsatisfactory level of uncertainty surrounding US tariff policy. We expect global inflation to remain relatively stagnant for the next few months which should support credit markets and equities.

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