Global Market Review – June 2024

Global equities continued to edge up in June upon signs that slowing inflation across the major developed economies will bring lower interest rates this year. This increases the chances of a soft landing which would support corporate earnings growth and share prices.

Global share markets move higher

Global equities continued to make good progress during June, returning 2.0% in USD or 1.5% in AUD terms. However, performance was mixed, with shares gaining 3.7% in the US, but generally weaker across European and Chinese markets.

US core inflation reached a three-year low of 2.6% in May, boosting investor confidence. Meanwhile, the UK became the first major economy to see inflation return to target, as prices rose 2.0% in the year to May. Interest rates stayed on hold in both countries.

US unemployment edged up to 4.0% in May, consumer confidence fell and retail sales remained weak. This was seen as consistent with the Federal Reserve beginning to reduce interest rates later this year. This followed the European Central Bank (ECB) and the Bank of Canada both reducing interest rates by 0.25% in June.

Tech stocks again drove global share markets higher in June, as semiconductor software developer Broadcom announced a big jump in quarterly earnings. Nvidia briefly became the world’s most valuable company, before falling back to end June up 149.5% year-to-date!

But risks loom across the world

The ECB cut interest rates in June by 0.25% to 3.75%, its first reduction in five years. However, investors expect rates to fall slowly after May core inflation remained stuck at 2.9%.

European equities fell in June. France’s President Macron called a general election for early July, in which the populist National Rally is expected to do well. Fears that this would bring higher government borrowing pushed French bond yields 0.80% above comparable German bunds, driving French equities 5.7% lower. In contrast, the UK’s expected change in government is expected to bring little change in economic policy, given its fiscal constraints.

Weakness in China’s property market and consumer sector pushed its share market lower in June. House prices fell a further 3.9% in May, while consumer prices flirt with deflation. The government’s pivot towards green exports was dealt a blow when the European Union announced new tariffs on Chinese electric vehicle imports.

Ongoing Middle East tensions remain, helping to push oil prices 5.1% higher in June.

Interest rate risk grows in Australia

Australian shares were relatively stable, rising just 1.0% in June, partly reflecting the market’s lower exposure to technology stocks.

Expectations that the Reserve Bank of Australia (RBA) will only start reducing interest rates sometime after the other major central banks further restrained equities. These were reinforced when monthly inflation increased to 4.0% in May from the previous 3.6%, a bigger rise than forecast. Some economists now think the RBA may even raise rates again before cutting.

The higher for longer interest rate environment continues to slow Australia’s housing market, with prices increasing by just 0.5% month-on-month in June across the eight capital cities.

Weakness in China’s economy helped push down the price of Australia’s key commodities, including iron ore, copper and coal.

Outlook

• ‘Higher for longer’ interest rates are slowing the global economy but inflation remains sticky
• Interest rates are expected to start falling this year across most developed economies, except Australia and Japan
• Slower consumer spending and weaker industrial output are impacting the earnings of some cyclical companies
• Geo-political risks remain, but stocks able to grow earnings through the business cycle should outperform as the economy slows