Issue No. 71

June was a mixed month for financial markets as investors balanced renewed geopolitical tensions, rising inflation and uncertainty around the path for interest rates. U.S. equities moved lower, declining 0.9% as Communication Services (-7.8%), Energy (-5.1%) and Information Technology (-3.3%) weighed on returns. U.S. bonds gained 0.2% as investors continued to assess the outlook for inflation and central bank policy. Commodity prices also pulled back, with oil falling 18.5% as U.S. and Iran work toward a peace deal, gold declining 12.1% and natural gas slipping 1.3%. Emerging market equities fell 1.4%, retracing some gains after two consecutive months of outperformance. Here are some of June’s most notable events:

Inflation pressures return following stronger energy and producer prices. In the U.S., inflation pressures strengthened, with consumer prices rising 4.2% year over year, their highest reading since April 2023 and the third consecutive monthly acceleration.

Strong labour markets complicate interest rate expectations. Employment gains were supported by strength in hospitality, which also contributed to job growth in the United States. U.S. payrolls rose by 172,000 jobs in May, well above economist expectations, while the unemployment rate held at 4.3% and average hourly earnings increased 0.3% over the month. Stronger-than-expected labour market data may reduce the urgency for central banks to ease policy, reinforcing uncertainty around the timing and pace of potential interest rate cuts. The latest dot plot showed that nine of 18 Federal Open Market Committee (FOMC) participants expect at least one interest rate hike in 2026, compared with prior projections that had pointed to one cut this year.

Conflict in the Middle East continued to drive energy market volatility. June got off to a turbulent start after Iran suspended negotiations with the U.S. on June 1 over military operations in Lebanon, pushing oil prices higher and renewing concerns over potential disruptions to energy supplies. However, diplomatic progress mid-month culminated in the signing of an interim memorandum of understanding, which called for an immediate ceasefire, initiated the reopening of the Strait of Hormuz, and outlined a 60-day framework toward reaching a final peace deal. Oil prices have come down since and negotiations are ongoing.

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