Global share markets continued their upward trend in May, with the MSCI World Index rising by 6.0%. Growth companies were especially popular, and the MSCI World Growth Index reached a new record high, climbing 8.7%.
As we move into June markets have focused on the outbreak of hostilities been Iran on one side and the US/Israel on the other, although the impact has so far been surprisingly muted. So much so that oil prices have fallen below $70/barrel after the recent announcement of a ceasefire, having briefly spiked to $80 on the prospect of Iran closing the Strait of Hormuz.
Meanwhile bond markets experienced a bumpy ride during the month, as investors weighed persistent inflation, slower economic growth, and growing concerns about government finances. Interest rates jumped mid-month after Moody’s lowered the US government’s credit rating to Aa1, pointing to rising deficits and ongoing political disagreements as key risks. This downgrade led to a sharp fall in the price of longer-term US government bonds, which pushed borrowing costs higher and raised questions about the long-term outlook for the US’s $36 trillion debt pile.
Macro markets in turmoil
The start of 2025 has been challenging for investors, with markets unsettled by President Trump’s unpredictable tariff decisions, which have created significant uncertainty. His widely discussed new “big, beautiful bill” has faced strong criticism, including from Elon Musk, who called it a massive pork-filled “disgusting abomination”. Never a quiet moment in the White House, former Chief Strategist Steve Bannon has even suggested Musk has had a physical altercation with Treasury Secretary Scott Bessent over his failure to deliver $1 trillion in spending cuts.
Is it any wonder that global macro funds that try to profit from economic trends have had a difficult start to the year. As the following chart shows, macro funds have recorded their worst start to the year on record as they try to navigate the volatile environment. With policy changes and renewed tensions in the Middle East continuing to affect markets there’s no doubt there will be further ups and downs, although with volatility also comes increased opportunities for skilled managers.
OCR falls to 3.25% on global uncertainty
Back to more mundane topics, the RBNZ continued its monetary easing cycle in May, announcing a reduction in the Official Cash Rate (OCR) by 25 basis points to 3.25%. This move reflects the Bank’s confidence that inflation is currently tracking within its target range of 1 to 3 percent and is expected to settle near the 2 percent midpoint over the coming years.
The New Zealand economy is showing early signs of recovery after a period of contraction in 2024, with strong export prices—particularly in dairy and beef—helping to support growth. Indeed, GDP growth for the March 2025 quarter came in ahead of forecasts at 0.8 percent following an increase of 0.5 percent in the prior quarter. Those hoping for further cuts may be disappointed, at least in the short-term as higher growth is likely to mean the Reserve Bank will take a “wait and see” approach at the next OCR meeting due in a fortnight.
Despite these positive domestic indicators, as highlighted above the global environment has become increasingly challenging. Increased tariffs and uncertainty about international trade policies, especially between the US and China, are slowing global economic growth and could affect demand for New Zealand’s exports. While these global factors may dampen growth and investment in New Zealand, the RBNZ expects economic growth to continue over 2025, albeit at a slower pace.
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