Financial markets had a strong second quarter of the year, as tensions in the Middle East showed signs of de-escalating and the price of oil fell back towards pre-conflict levels. The improving sentiment saw many equity markets reach record highs, leading to a positive period for investors.
Global markets
Global equities had a stellar second quarter, with many markets trading to record highs. Although the conflict in the Middle East remained largely unresolved, there were signs of de-escalation, which supported markets. Sentiment was also supported by ongoing enthusiasm in the technology sector and strong corporate earnings.
US equity markets saw double-digit gains, with the S&P 500 Index up 15.2% and the Nasdaq 100 Index up 21.6%. It was a good turnaround for both indices after delivering negative returns in the first quarter of the year.
European and Asian markets followed a similar pattern, benefiting from the fall in oil prices. The Euro Stoxx 50 Index rose 15.2%, while in Asia, the Nikkei 225 Index was one the strongest performing global share markets, rising 37.4%. Corporate reforms and a weakening currency added to the support for Japan’s market.
Bond markets were up and down. Although oil prices dropped, the inflation outlook remained uncertain. On the other hand, signs the geopolitical uncertainty was weighing on the global growth outlook provided support for bonds. As a result, bond returns were mixed across regions. European bonds delivered some of the stronger gains, while Japanese bonds fell, with yields there hitting multi-decade highs. When bond yields rise, the price of bonds fall.
New Zealand market
The New Zealand equity market also delivered a positive return over the quarter, though its 5.5% return was well below most global peers. Economic conditions remained challenging, with the outlook shaped by persistent inflation pressures, soft growth and weak confidence indicators, which ultimately led to the market’s underperformance.
Inflation was a central focus. The annual consumer price index (CPI) was 3.1% in the March quarter, unchanged from late 2025 and sitting just above the top of the Reserve Bank of New Zealand’s (RBNZ) 1–3% target band. Although they have declined from the levels seen earlier in the quarter, elevated oil prices are expected to see annual inflation rise towards 4% later this year.
Against this backdrop, the RBNZ left the Official Cash Rate (OCR) unchanged at 2.25% throughout the quarter, but its most recent policy decision in May was finely balanced, requiring the Governor’s casting vote following a 3–3 split within the Committee.
New Zealand bond markets were among the strongest performing during the quarter, supported by growing evidence the inflationary impact of higher oil prices would remain contained.
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