It was a volatile quarter for global financial markets as renewed hostilities in the Middle East pushed oil prices higher and dampened investor sentiment.
Global markets
Global equity markets experienced a volatile quarter, largely driven by ongoing hostilities in the Middle East, which kept energy prices high and fuelled concerns that inflation could remain elevated for longer.
US equity markets finished the quarter higher, with the S&P 500 Index up 2.3%, supported by strong energy sector performance as higher commodity prices boosted earnings. The Nasdaq 100 Index gained 0.6%.
European markets were weaker, reflecting the region's greater dependence on imported energy and the vulnerability of key trade routes through the Strait of Hormuz. Against this backdrop, the Euro Stoxx 50 Index fell 0.7%, while France's CAC 40 Index declined 4.9%.
Asian markets also weakened over the quarter, reflecting both geopolitical headwinds and region-specific challenges. Japan's Nikkei 225 Index fell 4.1%, with losses amplified by weakness in semiconductor-related stocks, an area to which the index has significant exposure.
Bond markets came under pressure as higher energy prices and persistent inflation concerns prompted several central banks to raise interest rates and signal that further increases may be needed. In the US, the Federal Reserve (the Fed) raised interest rates for the first time since 2023, while the European Central Bank (ECB) also raised interest rates as inflation moved higher. When bond yields rise, bond prices typically fall.
New Zealand market
The New Zealand equity market also delivered a positive return over the quarter, with the NZX 50 Index rising 1.6%. Despite ongoing cost pressures across the economy, business and consumer confidence remained relatively resilient, helping support market sentiment.
The Reserve Bank of New Zealand (RBNZ) raised the Official Cash Rate (OCR) twice during the quarter to 2.75%. The central bank signalled that further increases are likely as it seeks to contain inflation.
The unemployment rate rose to 5.6%, its highest level in more than a decade, as labour force growth outpaced job creation. While employment continued to grow, more people entered the workforce, leading to an increase in job seekers.
New Zealand’s bond market weakened alongside its global counterparts. Expectations of further rate hikes from the central bank, combined with rising commodity prices, pushed bond yields higher.
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