Meanwhile, at the NATO Summit held on June 25, member states agreed to increase defence spending to 5% of GDP from 2% by 2035. This decision was greatly influenced by renewed pressure from President Trump, who emphasized the need for greater burden-sharing among allies.

US inflation in May rose less than expected, coming in at 2.4% year-on-year versus April’s 2.3%. Core CPI, which excludes volatile food and energy prices, remained steady at 2.8% year-on-year. The index favoured by the US Federal Reserve (US Fed), the core Personal Consumption Expenditures index, rose 2.7% year-on-year, exceeding expectations. The US economy contracted by 0.5% in Q1 2025, as trade tensions weighed on business activity. China’s manufacturing PMI inched up to 49.7 in June from 49.5 in May, signalling a modest improvement in industrial activity. However, the index remains below the 50-point threshold that separates expansion from contraction, indicating that the recovery is still fragile.

On central bank policy, there was some diverging actions. The Bank of England held interest rates steady at 4.25% on June 19, while the European Central Bank (ECB) continued its easing cycle, cutting interest rates by 25 basis points. The ECB’s decision was driven by easing inflation pressures, an improved economic outlook, and a desire to support growth. This marked the ECB’s eighth interest rate cut over the past year, reducing rates by a cumulative 2% since June 2024. The People’s Bank of China kept its interest rates unchanged in June after a cut in May, which marked the first-rate reduction since October 2024. This move is part of a broader monetary easing campaign by Beijing aimed at supporting a cooling economy and addressing risks stemming from trade tensions with the US. At its June meeting, the US Fed held rates steady but revised its forecasts, raising its inflation outlook and lowering its growth expectations for 2025.

Global equities posted strong gains in the second quarter, with the MSCI All Country World Index rising 11.7%. Emerging markets outperformed developed markets, with the MSCI EM Index returning 12.2%. Japan’s Nikkei rose 6.7% in June, bringing quarterly gains to 17.9%, despite concerns over the impact of US tariffs. European equity markets delivered mixed results, Germany’s DAX was the best performer in USD returning 17.2% for the quarter, while UK’s FTSE 100 returned 9.6%.

Bond markets were volatile during the quarter, influenced by geopolitical tensions. In addition, the deterioration in fiscal metrics implied by the budget reconciliation bill under consideration kept US long bond yield under pressure. The US Dollar Index fell by 7.0% over the quarter against a basket of major currencies, as investor sentiment was shaken by recent Trump administration policies. The Bloomberg Global Aggregate Bond Index returned 4.5% for the period. In commodities, gold rose 5.7% during the quarter, as investor interest shifted toward alternatives such as platinum group metals (PGMs). Platinum surged 36.2%, supported by a sharp increase in Chinese imports.
 

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