Introduction
Further tensions in the Middle East dominated headlines in June. Israeli airstrikes on Iranian nuclear facilities in mid-June led to a temporary spike in oil prices and increased market volatility. The potential closure of the Strait of Hormuz by Iran further heightened concerns, given its strategic importance for global oil transit.
United States
Trump’s trade war continues, despite the obstacles thrown in its way. The Court of International Trade was able to block some of Trump’s tariffs due to the way they were enacted, but this is unlikely to have any long-term impact (WTW, 2025). There are alternative ways for the Trump administration to put tariffs in place, and it is expected that these will be used where necessary, as happened in early June when steel and aluminium import tariffs were doubled from 25% to 50%.
9th July will also see the deadline on the reciprocal tariff ‘pause’ expire. Markets will be braced.
Whilst US equity markets continue their recovery, the dollar continues to fall (Reuters, 2025).
How far the dollar will continue to fall is under debate, but the backdrop of Trump’s “Big Beautiful Bill” has done nothing to allay concerns about ballooning US government debt, which is now at $36 trillion. The Bill, which will increase U.S. debt by another $3.3 trillion, had yet to work its way through the Senate before the end of June but has passed the House and is now on its way to Trump’s desk (Reuters, 2025).
European bonds, in particular the German bund, are frequently named as safer alternatives.
The Fed held rates at 4.25%-4.5% in June. Whilst there is an expectation of higher inflation and lower economic growth ahead, the Federal Open Market Committee expects a further two cuts this year (CNBC, 2025).
Federal Reserve Chairman Jerome Powell urged patience during a news conference. Inflation is cooling and the job market is holding steady, but there remains some caution due to underlying concerns about future tariff-led inflationary pressure and a softening labour market (CNBC, 2025).
“For the time being, we are well-positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policies,” Powell said.
Over the border, Canada has announced that it will rescind a new tax which would hit large tech businesses to salvage US trade talks (BBC, 2025).
United Kingdom
Prime Minister Keir Starmer and his Chancellor, Rachel Reeves, continue to endure domestic political problems. Their attempts to balance the books and adhere to a tight fiscal policy have led to unrest in their own party, with the proposed reform of disability benefits triggering a backbench revolt.
A softening of the welfare reforms simply fuels speculation of tax changes in other areas. The Lifetime ISA is set for reform, and a possible cut to cash ISA rates is now being discussed in the national press (Independent, 2025).
Despite the persistent gloom, there were also bright spots. The UK economy grew by 0.7% in Q1. January showed zero growth, February 0.5%, and March was revised up to 0.4%. This was the highest GDP increase since Q1 2024. Household spending was also revised up for Q1 from 0.2% to 0.4% (Independent, 2025).
April’s data, however, showed a GDP contraction, and Q2 is expected to be much slower for growth (ICAEW,2025). Unemployment rates are a concern. Whether this is just a post-tariff blip or a more permanent trend remains to be seen.
The Bank of England maintained the base rate at 4.25% in June.
UK stock markets also continued to rise in June, with the FTSE 100 hitting its highest closing day value on 12th June of 8,884.92. There remains a growing concern about the lack of IPOs in the UK (EY, 2025). There were just five new listings in Q1 2025 and no expectation that this will improve, given the global economic uncertainty that businesses and investors face.
Europe
European defence stocks are up almost 70% in the first half of 2025. Trump played a part in this. His antipathy towards funding European military protection has forced other NATO members to increase their own spending (Reuters, 2025). Germany went as far as to overhaul its own borrowing rules to upgrade its military and boost defence spending (Reuters, 2025).
Other Eurozone indicators remained steady. Inflation crept up in June from 1.9% to the central bank target of 2% (Trading Economics, 2025).
There is some optimism in Europe. As noted above, bond markets have benefited from diminished confidence in the US. Equity markets have benefited from a weaker dollar. Economic growth has surprised many commentators.
However, the underlying concerns which were discussed in recent years have not really gone away. The Eurozone’s biggest economy, Germany, faces long-term questions about its reliance on export markets, creeping unemployment (EN, 2025) and rising corporate distress levels (Weil, 2025).
Far East
China’s manufacturing activity declined for the third straight month in June. Trade frictions with the U.S. continued to weigh on the world’s second-largest economy (CNBC, 2025).
The official manufacturing Purchasing Managers Index for June, which was the first full month after the China-U.S. trade truce was agreed upon, came in at 49.7, a slight improvement on May’s 49.5, according to data released by the National Bureau of Statistics.
As you would expect, Chinese Premier Li Qiang, talks optimistically about China’s ability to deliver on its 5% economic growth rate into the future, but this is not a view shared by many economists, who believe China may need to slow down its growth to transition to a consumer led economy or face longer-term problems (ET, 2025).
Data released by the Ministry of Economy, Trade and Industry in June showed that Japan’s industrial production increased modestly in May. This is not expected to be a trend once the full impact of U.S. tariffs comes through. Industrial production rose 0.5% in May from the previous month, after declining 1.1% in April (METI, 2025).
The Bank of Japan held interest rates at 0.5% in June (Trading Economics, 2025).
Emerging Markets
As we have said before, the term emerging markets is a very broad and loose label for a collection of very different economies.
Some have found ways around tariffs by front-loading shipments to the US or rerouting through third countries. This may just bring short-term relief.
The weakening US dollar has created some significant opportunities for those economies in a good position to exploit this.
Bond giant PIMCO described this as a ‘Goldilocks moment’ for emerging markets as capital has flown out of the US and into emerging markets in recent months (Investing.com, 2025).
“This is the most prominent capital rotation we have seen for the best part of two decades… and we still think we are in the early innings of this,” Pramol Dhawan, PIMCO’s Head of EM Portfolio Management, told Reuters.
India and Argentina, in particular, are showing growth and resilience. Turkey is currently facing a period of volatility due to political turmoil.
Conclusion
Underneath the political noise, portfolios have been recovering since the short, sharp shock of early April. It is another example of the rewards for investors that patience and resilience bring.
2025 has been unpredictable so far, and there is still a long way to go. However, as we saw at the very end of the month with Canada and the US, there is evidence of an underlying willingness to compromise on trade deals, which may make the pivotal dates in July less of a shock than April.
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