Monthly Market Review — June 2026

Equities

Global equities (+0.0%) were unchanged in June, as easing energy prices and progress toward a negotiated settlement with Iran helped temper concerns of energy-driven inflation, tighter central bank policy, and elevated market valuations. Beneath the flat headline result, market leadership broadened meaningfully, with several Magnificent 7 stocks declining as investors rotated into other areas of the market, including the potential beneficiaries of AI infrastructure investment. Central bank policy remained uneven as officials balanced inflation risks from the energy shock against softer economic growth conditions. The eurozone and UK central banks moved toward a more dovish stance as oil prices eased and economic momentum weakened, although the European Central Bank (ECB) still raised interest rates. The Bank of Japan (BOJ) tightened policy, while the US Federal Reserve (Fed), Bank of England (BOE), and Reserve Bank of Australia (RBA) left policy unchanged. In China, May activity data remained mixed, with weaker retail sales, investment, and housing prices partly offset by resilient industrial production and strong exports. Technology leadership also became more volatile, with South Korean technology stocks reaching new highs before retreating later in the month. The IPO market showed signs of renewed activity, led by SpaceX’s public offering, and several large private companies prepared to list. In the UK, Prime Minister Sir Keir Starmer’s resignation pointed to a likely leadership transition to Andy Burnham in July and possible budgetary reform, though the immediate market impact was limited.

US

US equities (-1.0%) ended lower. The Magnificent 7 stocks shed more than US$2.2 trillion of value on a substantial rotation away from AI hyperscalers to chipmakers and other companies benefiting from massive AI spending. Market performance broadened to economically sensitive sectors of the economy, with small-cap and value-oriented equities outperforming growth stocks by a wide margin. In Kevin Warsh’s first meeting as Fed chair, the Federal Open Market Committee left interest rates unchanged in a range of 3.5% – 3.75%. Quarterly economic projections revealed that 9 of 19 Fed officials anticipate at least one interest-rate hike this year, marking a decisive shift from March “dot plot” projections, which signaled one rate cut in 2026. This hawkish change in policy-rate expectations reflected highly elevated headline and core inflation and a hotter-than-expected economy, underscored by accelerated consumer spending and a recent surge in job growth. Compared to a year earlier, the core Personal Consumption Price Index rose 3.4% in May before a 60-day peace agreement between the US and Iran pushed oil and gas prices sharply lower, easing financial strains on consumers and likely reducing inflation in the months ahead.

Economic data released during the month was primarily solid, highlighted by a broad acceleration in the labor market. In May, nonfarm payrolls rose by 172,000, well above consensus expectations of 88,000, while job growth in April was revised sharply higher to 179,000, offering hope that the labor market may be breaking out of a prolonged period of lackluster hiring. Initial jobless claims remained at a historically low level, and the unemployment rate was stable at 4.3%. Despite macroeconomic uncertainty and the spending strains from a three-year high in inflation, consumer outlays in May were bolstered by a pickup in hiring, elevated tax refunds, and favorable wealth effects from higher stock prices. Headline retail sales accelerated 0.9%, exceeding expectations of 0.6% and above 0.4% growth in April, while consumer spending increased 0.7% after a 0.4% gain in April. The Conference Board’s Consumer Confidence Index rose slightly to 91.2 but was below expectations and remained at a relatively low level. In the housing market, existing-home sales rose at their fastest pace in a year, but an unexpected decline in new-home sales amid stubbornly high mortgage rates and elevated home prices dampened hopes of a recovery from a lengthy period of depressed sales.

The manufacturing sector expanded for the sixth consecutive month with the Institute of Supply Management (ISM) Manufacturing Index registering 53.3 in June, down from 54.0 in May. The services sector grew at a solid pace in May; the ISM Services Index advanced to a three-month high of 54.5 on a surge in new orders and broad-based growth across sectors, while core inflation expectations ramped up as tariffs and the Iran conflict drove prices to their highest level since August 2022. The NFIB Small Business Optimism Index softened more than anticipated in May, reflecting above-average economic uncertainty, intensifying price increases, supply chain disruptions, and weak expectations for capital expenditures.

Within the S&P 500 Index (-1.0%), four of the 11 sectors posted negative results for the month. Communication services (-7.8%) was the worst-performing sector, led lower by interactive media & services (-7.3%). Energy (-5.1%) and consumer discretionary (-4.7%) also underperformed the index. Industrials (+7.3%) was the best-performing sector, while health care (+6.6%) and financials (+4.4%) also outperformed.

EUROPE

European equities (+3.3%) advanced as energy concerns eased following a US-Iran framework peace agreement and a gradual reopening of the Strait of Hormuz. The European Parliament approved a long-delayed trade deal with the US, averting threats of 25% US tariffs on European cars. European lawmakers agreed to remove levies on US industrial goods and some agriculture products in exchange for a 15% US tariff cap on most European exports. Trade relations with China remained strained as the European Commission prepared tougher measures to address a widening trade deficit with China. The S&P Global Flash Eurozone Composite Purchasing Managers’ Index (PMI) rose to 49.5 in June from 48.5 in May, indicating only a slight downturn in private sector activity. German output posted its sharpest decline in a year and a half, while French business activity contracted at a slower pace. The ECB raised interest rates for the first time since 2023 in response to inflation pressures from the Middle East energy shock. However, ECB President Christine Lagarde indicated that the central bank’s response to inflation would be less aggressive than in 2022 – 2023, as signs moderating economic momentum in the second quarter, a decline in oil prices, and lower-than-expected annual eurozone headline inflation of 2.8% in June tempered expectations for tighter policy. The central banks of the UK, Norway, and Sweden left interest rates unchanged. According to LSEG, first-quarter earnings for companies in the STOXX 600 Index are forecast to increase by 11.8% from a year earlier.

The S&P Global Eurozone Manufacturing PMI moderated to a four-month low of 51.4 in June but remained in expansionary territory for a fifth consecutive month as factory production growth quickened. The S&P Global Flash Eurozone Composite PMI revealed that services sector activity improved in June but continued to contract modestly for the third consecutive month. A slower increase in input costs and output prices curbed inflation across both manufacturing and services. The European Commission’s Economic Sentiment Indicator increased noticeably to 95.0 in June; both industry and consumer confidence rebounded.

Germany’s (-1.2%) Bundesbank downgraded the country’s economic growth outlook, forecasting GDP to expand by only 0.5% in 2026 due to the strains of the energy shock on households and industry. Encouragingly, a sharp rebound in the ZEW Indicator of Economic Sentiment in June reflected greater optimism that reduced tensions in the Middle East will ease inflationary pressures on Germany’s industrial base and households. In the UK (+0.7%), Prime Minister Sir Keir Starmer’s resignation after significant Labour Party losses in May elections prompted political uncertainty and raised concerns about fiscal policy, public investment, and the government’s economic programme. The UK economy contracted 0.1% in April due in part to the impact of the war in Iran, while the S&P Global Flash UK PMI Composite Output Index declined in June for the second straight month, as a sharper decline in services activity offset an improvement in manufacturing output. Annual headline inflation unexpectedly held steady at 2.8% in May, easing the pressure on the Bank of England to raise interest rates against a backdrop of weak economic growth.

PACIFIC BASIN

Pacific Basin equities (+1.1%) rose over the month. In Japan (+1.8%), economic data and policy developments reinforced the BOJ’s inflation-focused stance, with BOJ Governor Kazuo Ueda and other officials signaling that upside inflation risks from a weak yen, higher oil costs, and resilient wage growth justify continued policy normalization despite fragile household demand. As expected, the BOJ raised its benchmark rate by 25 basis points (bps) to 1.0% — the highest since 1995 — but offered little guidance on the timing of its next move, leaving market expectations centered on another increase later this year. The BOJ considered pausing its Japanese government bond purchasing in 2027, a move that could help stabilize long-term yields. First-quarter GDP growth was revised lower to an annualized rate of 1.8% from a preliminary estimate of 2.1%, driven by weaker investment. Prime Minister Sanae Takaichi’s cabinet approved a ¥3.1 trillion (US$19.4 billion) package to help households cope with inflationary pressures linked to the spike in energy costs from the US-Iran conflict. Japan’s core CPI was stable at 1.4% in May as government subsidies and softer food and energy prices helped to contain inflation.

In Australia (+0.9%), the Reserve Bank of Australia (RBA) unanimously held the cash rate at 4.35% after three consecutive 25 bps rate hikes began to weigh on the economy, particularly the housing market. However, the RBA retained a hawkish bias, with Governor Michele Bullock signaling that further tightening remains possible if sticky underlying inflation pressures persist. First-quarter GDP growth slowed more than expected to 0.3% compared to the prior quarter, reflecting mounting pressure on households. A surge in data-center investment helped offset broader weakness, but the drag from tighter policy and the impacts of the energy shock raised the risk of a second-quarter GDP contraction. While headline inflation eased to 4.0% in May on temporary fuel excise relief, trimmed-mean inflation accelerated to 3.6%. Additionally, stronger-than-expected hiring alongside lower unemployment pointed to a still-tight labor market, reinforcing the central bank’s cautious stance and sustaining market expectations for additional tightening in 2026.

In Singapore (+4.0%), Prime Minister Lawrence Wong warned that growth and inflation pressures may intensify in the second half as higher energy costs, supply chain disruptions, and renewed tariff risks filter through the trade-reliant economy. Economic indicators were resilient; manufacturing activity strengthened in May, and non-oil exports surged 38.4% year over year — the fastest pace since 2003 — on strong AI-related electronics demand, while retail sales topped expectations despite slower momentum. Core inflation was steady at 1.4% in May and below expectations, suggesting the economy has so far been insulated from energy-driven inflation pressures. With inflation still subdued, markets perceive less urgency for the Monetary Authority of Singapore to tighten policy in July, although imported inflation risks persist.

Emerging markets

Emerging markets (EM) equities (0.0%) were flat. Asia gained, while Europe, the Middle East, and Africa (EMEA) and Latin America declined.

In Asia (+0.3%), China (-6.9%) was weighed down by weak domestic demand, the beleaguered property sector, and concerns about the sustainability of the country’s economic recovery. Consumer spending deteriorated, with a 0.6% year-over-year drop in retail sales marking the first decline in more than three years. The property sector remained under pressure; resale home prices fell at a faster pace in June, and property investment dropped 16.2% in the first five months of 2026 compared to the same period last year. The official manufacturing PMI returned to expansion in June with a slightly improved reading of 50.3, although growth was largely driven by exports and AI-related technology demand rather than domestic demand. Exports gained pace in May, rising 19.4% from a year earlier, as technology-related shipments remained robust. Notably, exports to the US surged more than 35% year over year, marking the highest pace of growth since early 2021. Taiwan’s (+3.0%) economy continued to benefit from the global AI boom. The central bank raised its 2026 GDP growth forecast to 9.45%, from 7.25% in March, but it kept interest rates steady despite inflation concerns. External demand remained exceptionally strong, with exports surging 51.7% year over year in May to US$78.5 billion. South Korea’s (+3.1%) exports expanded at the strongest pace since 1978, rising 70.9% year over year in June to US$102.25 billion, as shipments of semiconductor chips soared almost 200% to US$44.8 billion. India’s (+1.2%) retail inflation rose 3.93% annually in May, driven by higher food and fuel costs, but remained close to the central bank’s medium-term target. A decline in new orders and output caused the HSBC Manufacturing PMI to slip to a still elevated level of 54.2 in June, but the reading was the second lowest since mid-2022.

In Latin America (-0.9%), Brazil’s (-0.8%) central bank cut its benchmark Selic rate by 25 bps to 14.25% and raised its 2026 inflation forecast from 4.6% to 5.2% and its 2026 economic growth forecast from 1.6% to 2.0%. A robust labor market and high government spending support economic activity but undermine the tight monetary policy needed to slow inflation to target. In Mexico (-2.4%), the Organization for Economic Cooperation and Development lowered its 2026 GDP growth forecast from 1.3% to 0.8%, citing economic policy uncertainty, trade tariffs, and fiscal consolidation. Exports jumped 25% year over year in May, driven by a 25.6% annual increase in non-oil exports and an 18% rise in oil exports.

In EMEA (-2.0%), Saudi Arabia’s (-2.7%) crude oil exports dropped to a record low of four million barrels per day in April due to restricted flows via the Strait of Hormuz. In South Africa (-5.7%), inflation rose slower than anticipated at 4.5% year over year in May, reducing the likelihood of higher interest rates in the near term. Economic activity showed signs of improvement, as the S&P Global South Africa PMI expanded to 50.5 in June from 49.6 in May.

FIXED INCOME

Fixed income markets posted modest gains in June as easing geopolitical risk reduced the energy-risk premium and pushed most global sovereign yields lower. The US Aggregate Index returned 0.24%, lagging duration-equivalent Treasuries by 6 bps, while the Global Aggregate Index returned 0.37% in US-dollar hedged terms, trailing duration-equivalent government bonds by 4 bps. Inflation-linked bonds lagged as oil prices eased, with the TIPS Index returning -0.47% and the 10-year breakeven inflation rate falling 16 bps to 2.23%.

Sovereign performance was mixed across regions. US Treasury yields rose at the front end and the curve flattened as markets priced a higher risk of later-year rate hikes. German bunds rallied as oil prices fell and investors focused on a weaker economic growth impulse from the energy shock, while UK gilts outperformed on softer domestic data. Japanese government bonds lagged as the BOJ continued policy normalization. EM sovereign yields generally moved lower, supported by elevated carry and attractive starting yields, with Poland, South Africa, and Mexico among the stronger local-currency markets.

Credit markets posted positive total returns in June but generally underperformed duration-equivalent government bonds as spreads widened. US investment-grade corporates generated positive total returns but lagged Treasuries, with financials outperforming and industrials and utilities trailing. High yield also posted positive returns, led by higher-quality bonds, as BB rated issues outperformed lower-rated cohorts.

Global credit followed a similar pattern, with positive total returns but negative excess returns versus comparable government bonds. US dollar, euro, and sterling corporate bonds all gained, although performance versus duration-equivalent government bonds varied; euro credit outperformed, sterling credit was roughly in line, and US-dollar credit underperformed. In EM, external debt outperformed local debt, as spread tightening supported hard-currency bonds while currency weakness and higher local rates weighed on local-market returns.

Currencies

The US dollar posted mixed performance in June. Higher front-end US Treasury yields and a repricing toward a “higher for longer” Fed policy path provided support, helped by sticky inflation data and a hawkish shift in Fed projections. However, momentum softened late in the month, as geopolitical risk premia faded. Within G10 currencies, the New Zealand and Australian dollars weakened on softer commodity sentiment and reduced interest-rate expectations, although New Zealand’s central bank retained a more hawkish policy bias. The Japanese yen remained under pressure from wide interest-rate differentials, while gradual BOJ policy normalization limited the extent of weakness. EM currencies broadly weakened, although the Colombian peso stood out, supported by high carry, oil sensitivity, and local flows.

Commodities

Commodities (-9.9%) declined in June, with all four sectors detracting during the period. Energy (-14.0%) fell sharply. Crude oil (-18.3%) was the largest decliner within the complex, as easing US-Iran tensions and growing confidence in the reopening of the Strait of Hormuz reduced concerns about oil supply disruptions, which led to an unwinding of the geopolitical risk premium embedded in prices. Refined products also moved lower, with gas oil (-6.8%), heating oil (-6.4%), and gasoline (-2.7%) decreasing as supply concerns eased and softer demand weighed on refining margins. Natural gas (-1.5%) fell as elevated US production and ample storage inventories kept the market well supplied, offsetting the impact of warmer weather and improving demand. Expectations for cooler temperatures after a brief heat wave further weighed on prices.

Industrial metals (-7.8%) ended lower. Aluminum (-16.2%) slid as easing US-Iran tensions and the prospective reopening of the Strait of Hormuz reduced supply-risk concerns and unwound the conflict-driven risk premium. Nickel (-14.8%) fell, with strength in the US dollar and a seasonal increase in nickel ore supply weighing on prices. Lead (-7.9%) declined on weak seasonal demand, rising global exchange inventories, and bearish macro sentiment. Copper (-1.6%) was dragged down by a firmer US dollar, hawkish Fed interest-rate signals, and fluctuating Chinese demand. Zinc (+1.4%) was supported by tightening inventories, supply disruptions, and higher production costs that constrained global supply. Steady demand from infrastructure and galvanizing applications further aided prices.

Precious metals (-12.9%) were led lower by silver (-21.3%) and gold (-11.8%). The sector was pressured by higher real yields and rising expectations of tighter US monetary policy, which reduced demand for nonyielding assets. A stronger US dollar and easing geopolitical risk further weighed on prices, as markets shifted away from perceived safe-haven demand.

Agriculture & livestock (-0.6%) ended modestly lower. Corn (-8.3%), wheat (-5.0%), and soybeans (-4.8%) declined as favorable weather, healthy crop conditions, and expectations for large US harvests improved supply prospects, outweighing support from rising crude oil prices and geopolitical tensions in the Middle East. Market sentiment remained focused on abundant grain supplies, with robust yield expectations and growing confidence in another large crop year pressuring prices across the grain complex. Feeder cattle (+5.0%) was aided by tightening livestock supplies and resilient demand conditions. Coffee (+13.8%) surged on weather-related supply disruptions in key producing regions, rising transportation costs, and import tariffs. Strong global demand, particularly from China, further tightened supplies and pushed coffee prices even higher. Cocoa (+27.1%) rallied on higher El Niño-related weather risks in West Africa, fueling concerns about future crop yields and tightening the global supply outlook.