The June quarter of 2025 has been a rollercoaster for the financial markets. Investors and policymakers had to deal with a mix of good news and bad – on the one hand, inflation fell, but then a war broke out in the Middle East and to make it even more interesting, Donald Trump introduced a blanket of tariffs on imports on every country in the world.
War in the Middle East
Middle East tensions erupted into all-out war as an exchange of strikes between Israel and Iran in mid-June sent new ripples through global markets. This caused the price of Oil to spike initially before retracing. The US dollar also fell to a three-year low as US bond yields rose. Experts believe that an extended war in the Middle East could slow down Australia’s economic growth by 0.2% if the oil-supply out of the Middle East is disrupted. There are now fears that the situation could escalate further after the US recently assisted Israel by bombing key Iranian nuclear facilities in an attempt to stop them from building their own nuclear weapons.
US–Europe Trade Tensions
President Trump introduced tariffs on every country in the world on April 2 – then did a backflip on European goods by putting a 90-day hold on it – and this expires on 1 August. With no trade deal in place, tariffs are confirmed to resume from that date, with some rates climbing as high as 50 percent. In response, the European Commission has prepared retaliatory duties on roughly €95 billion of US goods to strengthen its negotiating position. By the time you read this – hopefully this will be resolved.
Fuel Price Outlook
After war broke out between Iran and Israel, the spike in the Oil price caused fuel pump-price rises in Australia of 10 to 15 cents per litre almost instantly. Oil is an inflation driver, so this caused new fears of renewed inflation spikes in Australia – and there are real concerns that domestic energy costs may climb further after the government’s temporary wholesale gas-price cap lifts in July.
Interest Rates
Here at home, our Reserve Bank dropped interest rates by 0.25% to 3.85% in May. Investors had been expecting this second rate cut of the year after inflation numbers came back down into the range that the RBA likes it to be. Meanwhile, the US Federal Reserve kept their rates on hold at 4.5% in June saying they would take a cautious, data-driven approach to reducing rates.
Cryptocurrencies and Precious Metals
Bitcoin traded back up to near US$99,000 in late June as investors balanced rate-cut expectations against the Middle-East war. Gold meanwhile steadied around US$3,300 per ounce at quarter-end – which is unusual as people tend to buy Gold during times of uncertainty. This comes after a stellar rally in the price of Gold since November 2022.
Equity Market Performance
Australia’s sharemarket closed up 1.3 percent from the end of March. What these numbers don’t show is the rollercoaster ride that share prices took during the quarter. In the early part of April, the ASX/S&P200 share price index fell over 10% in just a few days, after recovering strongly – rising over 20% by 30 June. In the US, their share price index, took a similar ride – rebounding strongly from April’s lows to deliver its best quarter of the year.
Housing Market Update
National house prices rose again last quarter, with June marking the fifth monthly gain in a row as the rate drop gave buyers confidence. Despite affordability challenges, the housing sector remains strong, largely driven by the fact there remains more buyer demand than there are houses to buy.
Labour Market and Consumer Sentiment
Australia’s unemployment rate held at 3.8 percent in May—near historic lows—with job vacancies still high. Consumer confidence rose slightly in June, suggesting the average household is gradually growing more positive about their finances and the economy – despite cost-of-living pressures.
Looking Ahead
As Q3 unfolds, there is a “wall of worry” looming for investors. All eyes are on what the RBA and the Fed do with rates. There is also uncertainty on what the expiry of the US–Europe tariffs will bring, and what happens in the Middle-East. August also brings about an annual share of nervousness to markets as listed companies report their financial results – with all eyes being on how they have performed, but also what businesses say they expect for the coming year.
