Market Update – June 2025

TWD May 2025 Commentary

Macro Commentary

After a turbulent April marked by rapid policy changes and market reactions, May began on a calmer note. Australia was relatively unaffected by ongoing global trade tensions, as US President Trump shifted his focus to negotiations with China and Europe in pursuit of more favourable trade terms.

In May, the Australian share market gradually strengthened. Despite early volatility, the ASX 200 rose by 4.23% as investor sentiment improved. The market gains were tempered somewhat by the broader global impacts of the US Administration’s trade announcements. Performance across sectors was mixed. Information Technology (+19.80%) and Energy (+8.62%) delivered strong returns. In contrast, Consumer Staples (+1.20%) delivered lower returns.

Domestic political uncertainty from April was resolved with a surprisingly decisive election win for the Labor party on May 3. Despite pundits’ expectations of a minority government, Labor secured a strong mandate for the next three years.

Economic data released in May was mixed. The April unemployment rate held steady at 4.1%, though underemployment rose slightly to 6.0%. Retail sales data released on May 30 showed an unexpected slip, falling 0.1% in April from March, contrasting the forecast 0.3% increase, and ending three consecutive months of gains. As Australian retail sales account for 35% of household consumption, this points to a potentially soft start to the second quarter.

On May 20, the Reserve Bank of Australia (RBA) reduced the Cash Rate Target by 25 basis points to 3.85%, a widely expected move given signs of easing inflation and a slowing economy. While some had speculated about a potential 50 basis point cut, the RBA indicated it was holding back on a larger rate cut in case of future market volatility. Swaps markets indicate another 25 basis point cut by the end of the year, bringing the total number of cuts for 2025 to three, which has been our base case assumption since the beginning of the year.

In the United States, the S&P 500 rose 6.15% in May (in USD terms), despite ongoing uncertainty related to inflation, trade policy, and broader economic conditions – its best May result since 1990. On May 8, the Federal Reserve left interest rates unchanged, maintaining a cautious “wait and see” approach.
The sharp tariff hikes seen in April between the U.S. and China were scaled back in early May. U.S. tariffs were reduced from 145% to 30%, and China lowered its tariffs from 125% to 10%. These reductions are temporary, set to last 90 days to allow time for further negotiations.

Separately, Trump briefly escalated trade tensions with the European Union. On May 23, he threatened new tariffs of 50% to take effect on June 1 due to stalled talks. However, following a call with the European Commission president, the tariffs were postponed to July 9 to allow more time for discussions.

Legislative opposition is growing against the executive branch’s use of tariffs. In late May, the U.S. Court of International Trade ruled that Trump exceeded his presidential authority by imposing tariffs under the International Emergency Economic Powers Act. The White House has appealed, temporarily pausing the ruling, and the case is likely headed to the U.S. Supreme Court.

Another key development in the US was the House passing the “One Big Beautiful Bill”, Trump’s flagship legislation, promoting Republican goals like tax cuts, border security funding, and social program reforms. It is projected to add USD $3.8 trillion to the national debt over the next decade and will likely undergo major changes in the Senate before it reaches final form.

Amid the global volatility, investors continued to seek safety in gold. After reaching an all-time high of over USD3,500 per ounce in April, by the end of May gold had retreated slightly to around USD3,289 per ounce, reflecting alternating periods of tension and calm in global trade discussions.

Looking ahead, while the current implications of U.S. trade policy under Trump remain unclear, we continue to recommend maintaining a well-diversified portfolio with a long-term perspective, grounded in strong investment fundamentals.

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