June 2026 quarter economic and market commentary
The June quarter can be characterised as one where markets wrestled with an increasingly adverse looking macroeconomic environment, exacerbated by the Iranian conflict, and strong structural economic mega-trends that provided ongoing tailwinds to equity market performance.
From a risk or equity market performance those strong structural tailwinds proved to be the more dominant influence.
Oil prices had surged through March in the wake of the decision by both the US and Israel to launch joint military strikes on Iran. At the start of the quarter the (Brent crude) oil price was above $US100 per barrel. After a number of false starts a de-escalation of the conflict seemed to have been reached by the end of the quarter and the prospects of some normalisation of shipping traffic flows through the Strait of Hormuz seemed imminent. Reflecting that prospective normalisation, the (Brent crude) oil price finished the quarter at around $US73 per barrel – not that far from pre-conflict levels. (Subsequent developments have cast doubt on the durability of any ceasefire and the resumption of normalised shipping traffic conditions and oil prices have jumped again).
Reflecting “sticky” inflation and inflation expectations, and fears that the surge in oil prices might unanchor inflation expectations, financial markets increasingly reflected some likelihood of further monetary tightening from the US Federal Reserve. Accordingly, US bond yields drifted higher.
Equity markets, however, exhibited a (maybe surprising) sanguinity in the wake of higher bond yields. Some of that may have reflected a retreat in oil prices from their highs. It is also the case that as the quarter progressed activity growth was stronger than expected, reflecting a strong surge in AI related capex and some surprising resilience in consumer spending. Yet, despite strong activity growth, tariff effects and surging oil prices, inflation hasn’t proved to be as dire as feared (subsequently affirmed by benign June inflation reports). The US equity market bounced almost 15 per cent through the quarter to be up an impressive 10 per cent year-to-date.
Perhaps a more fundamental driver of equity market performance has been the influence of huge economic structural mega-trends that are currently more important than conventional macro metrics in driving equity market performance. At the forefront of these changes is the rapidity of technological advances and the tremendous earnings upside for companies that can best take advantage of this phenomenon. Indeed, ongoing muscular earnings growth has more than validated what may have looked like rich equity market valuations.
Maybe a little surprisingly given its much vaunted “safe-haven” status, the price of gold continued to languish through the quarter. That may have reflected the fact that gold prices had surged through 2025 reaching a peak around $US5500 per oz in January 2026. By the end of June, it was down nearly 25 per cent from the peak at close to $US4000.
Locally, inflation data continued to hint at “last mile” complications in getting inflation back to the middle of the target 2-3 per cent range. The RBA’s favoured trimmed-mean measure of consumer price index (CPI) inflation, at 3.6 per cent, is well in excess of the mid-point of the RBA’s 2-3 per cent target range. The RBA increased the policy rate once through the quarter taking it to 4.35 per cent from 4.10 per cent at the beginning of the quarter (and followed two such increases in the March quarter). Australian bonds, however, markedly outperformed their US counterparts with the Australian 10-year yield falling some 25 basis points in the quarter to 4.72 per cent (US 10-year yields rose 15 basis points to 4.47 per cent.). That unwound some earlier underperformance and perhaps reflected a view that the RBA tightening phase is at or near an end.
The Australian equity market, however, lagged the US with the ASX200 increasing around 3.5 per cent in the quarter largely reflecting the absence of the AI motivated spurs in the US
Going forward, the key issues for 2026 revolve around how the conflict in Iran plays out and the subsequent impact on oil prices and attendant performance of the global macroeconomy.
Clearly oil prices will have a substantial impact on economic activity growth. Whether central banks including the Fed can mitigate the effect on economic activity will depend largely on how “sticky” inflation proves to be.
While in the US, inflation remains “sticky” it is perhaps not as bad as feared.
Against that, the strong performance in equity markets (particularly in the US) appeared to reflect ongoing positive assessments of the financial ramifications of the AI revolution and other structural “mega-trends”. That theme is less obvious locally.
US productivity exceptionalism is also an important theme. That is both growth enhancing and an inflation mitigant. Australia, and indeed most of the developed world outside the US, have exhibited abject productivity growth and that goes some way to explaining Australia’s poor record (both absolute and relative to other developed countries) in containing inflation to target.
It will be the relative strengths of the potentially negative macro forces and the positives emanating from those structural forces that will ultimately determine how global markets evolve for the remainder of 2026.
June 2026
Stephen Miller is an Investment Strategist with GSFM. The views expressed are his own and do not consider the circumstances of any investor.
