The Israel–Iran ceasefire has eased concerns about energy prices, thus curbing inflation pressures and maintaining the prospect of a rate cut by the Federal Reserve this autumn. Investor sentiment remains strong, notably on the technology sector. However, the unpredictability of geopolitical developments, coupled with the looming 90-day tariff-pause deadline, leads us to maintain a broad diversification across asset classes and regions.
Market recap
Beyond the numbers
Macroeconomics
Unsurprisingly, Fed Chair Powell’s testimony to Congress suggested that a rate cut is unlikely in July or August; for him, the uncertainty surrounding the current trade policy justifies a ‘wait-and-see’ approach.
PMIs in the US and Europe were broadly in line with expectations and continue to point to moderate private sector activity. The IFO Index confirmed improving business confidence in Germany. The draft budget agreed this week showed that the German government does not want to waste time before increasing public investment.
During the North Atlantic Treaty Organization (NATO) summit, leaders agreed that by 2035 they would allocate 5% of GDP to core defence requirements, as well as defence- and security-related spending.
This week, several indicators on the US job market and the ISM surveys will come into the spotlight, along with the US tax bill, as Trump is calling for it to be passed before 4 July.
Asset allocation: strategic views as at June 2025
Equities
Markets welcomed the easing of geopolitical tensions and positive US–China trade developments, with a risk-on mood dominating sentiment and leading to a total return of +3.3% for global equities (MSCI ACWI) last week.
Strength was once again led by US equities (S&P 500 +3.5% vs. STOXX Europe 600 +1.4%) and the global technology sector (+4.7%, Mag7 +5.1%), with the latter propelling major US indices (S&P 500, Nasdaq) to reach new all-time highs.
Recent US equity market strength, which is supported by upward earnings revisions, a weaker USD and elevated technology sector exposure, has led the performance gap with Europe to narrow, with the year-to- date STOXX Europe 600 up by +9.9% vs. a +5.6% gain for the S&P 500, compared with +5.4% and -4.9%, respectively, at the end of April.
With risks to the US economy and earnings outlook dissipating, we have returned to our conviction level of 4/5 on US equities (vs. 3/5 prior), while remaining mindful of elevated valuations (S&P 500 12-month forward P/E ratios 22.0x vs. the 5-year average of 20.1x).
We have also revised our conviction level on Chinese equities upwards from 2/5 to 3/5, as the prospect of fiscal and monetary support in the second half of the year, combined with Chinese technology sector strength, provides tailwinds.
While easing tensions led defence-related companies to lag behind last week (+2.6%), we see the recent spending commitments by NATO allies as a clear structural driver for the theme, which remains one of our preferred ones, along with technology and healthcare, both of which have been allocated a 4/5 conviction level.
As two major deadlines approach, namely the self-imposed Republican Party deadline for the so-called ‘Big Beautiful Bill’ on 4 July and the 90-day tariff- pause deadline on 8 July, market attention will now turn to US legislative and trade developments this week, in addition to US labour market data. Positive outcomes for all three would provide continued support for the current risk-on mood to be sustained.
With US risks dissipating, we have returned to our conviction level of 4/5 on US equities
Fixed income
Credit spreads continued to tighten throughout June, while Treasury yields declined on mild inflation and mixed economic signals, with the 10- year at 4.27% and 2-year and 5-year yields firmly below 4%. European yields moved up slightly amid talks of fiscal stimulus measures and increased defence spending. Investment-grade (IG) and high-yield (HY) bonds each gained 0.6% and 0.7%, respectively, with month-to-date returns above 1% and year-to-date gains over 4%.
Bloomberg highlighted USD 550 billion of BBB-rated debt being at risk of being downgraded to HY, with leverage at 3x – a level only surpassed during Covid-19; this warrants monitoring, as spreads are rich. Notably, leverage for BB and B bonds improved.
Powell’s testimony to Congress reinforced a cautious monetary policy stance, drawing fresh criticism from Trump who is expected to announce his Fed Chair pick soon, replacing Powell at the end of his term in May 2026.
High-yield bonds gained 0.7%, with year-to-date gains over 4%
Forex & Commodities
Last week the EUR/USD rose to levels above 1.17, following news of a ceasefire between Israel and Iran. The EUR benefitted from Germany’s 2025 debt issuance plans, which amounted to around 3% of GDP. The USD/CHF fell to levels of below 0.80 for the first time, reflecting broad USD weakness. We expect this trend of USD weakening to continue, as institutional investors move to hedge their USD-denominated asset exposures.
Oil fell back to levels around USD 67/bbl following the ceasefire in the Middle East, and we expect it to stabilise in the short term. Gold was largely unchanged at levels of just below USD 3,350 per ounce.
The weakening trend of the US dollar is likely to persist
The opinions expressed herein are correct as at 30 June 2025 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.
