Market Update - Month Overview (May 2025)

Summarised by Shara Cox (Report via Zenith)

International Market Summary

Global markets broadly recovered in May, reversing April’s losses as tariff tensions eased and economic data improved. US and European equities rose strongly, with the MSCI World ex-Australia Index gaining 6% in USD terms. Optimism about a soft landing in the US and stronger-than-expected corporate earnings - especially from tech-heavy “Magnificent-7” stocks - drove markets higher.

Inflation data continued to trend lower in both the US and Europe, reinforcing expectations of further interest rate cuts from the Fed and ECB. However, long-term bond yields rose, notably in the US (30-year hitting 5%) and Japan (above 3%), reflecting fiscal concerns, including a growing US budget deficit and credit rating downgrades.

Emerging markets advanced 4.3%, outperforming developed markets year-to-date, supported by a weaker USD and improved trade sentiment. Taiwan and Korea led gains due to strength in tech and AI sectors, while China and India lagged. Global REITs and infrastructure sectors also posted gains, despite rising yields.

In fixed income, central banks including the Bank of England began easing policy, although the Fed held rates steady amid policy uncertainty. Currency markets stabilised, with the AUD benefiting modestly from a shift away from USD-denominated assets.

Australian Market Summary

Australian equities rose by 4.2% in May, bringing the market within 2% of its all-time high. This performance follows a rate cut by the RBA, which lowered the cash rate to 3.85% - its second reduction in the current cycle. The cut reflects a more stable inflation outlook, with core inflation returning to the RBA’s 2–3% target range.

Encouraging labour market data, including the addition of 89,000 jobs in April, and rising wages (up 3.4% annually), contributed to improved investor sentiment. The IT sector led gains, soaring nearly 20%, with communications, REITs, and financials also performing well. Earnings growth expectations for the coming year have risen to nearly 6%, though valuation concerns remain, with the market trading at elevated PE ratios.

Australian bonds delivered modest gains, supported by expectations of further RBA easing. Meanwhile, business and consumer confidence have improved slightly but remain below long-term averages. Commodity performance was mixed - gold retreated after hitting a record high, iron ore remained weak due to soft Chinese demand, and copper bucked the trend with continued strength driven by global electrification themes.