In July, equity markets delivered solid returns. These were lifted by stronger than anticipated economic data and softer inflation numbers. Resilient economic activity and signs that major banks are slowing the pace of rate increases, and possibly reaching the peak, have supported investor hopes for a ‘soft’ economic landing.

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United States

Equity markets gained 3.2% in the S&P 500. Technology contributed significantly to this. This was evidenced by the tech-heavy Nasdaq lifting 3.7% in July. Smaller companies also did well, which was indicated by the Russell 2000 small-cap index rising by 6.1%. Inflation rose 0.2%, which was below market expectations. The US Federal Reserve increased the policy rate by 25 basis points and said that further rate decisions will be heavily contingent on future inflation and employment data.

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European and UK equity markets benefitted from reduced inflationary pressures and positive economic indicators. The European Central Bank increase interest rates by 25 basis points. Broader market expectations are that the rate hiking cycle is coming to an end with the fall of inflationary pressures. The European zone inflation dropped to 5.3%.

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Emerging markets

Equities in these markets were strong with the MSCI Emerging Markets Index (Unhedged) rising by 5%, outperforming Developed Market equities. Chinese equities was a major contributor, driven by stimulus measures targeting the real estate sector and weak household consumption. In other Emerging Markets, the Central Bank of Chile was the first significant Emerging Market to decrease its key policy rate after a period of intense tightening following the pandemic.

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The S&P/ASX 300 index rose 2.9%, with the Mid-Cap segment outperforming. Various sectors posted positive advances over the month, with Energy up 8.4%, Financials up 4.9% and Information Technology up 4.8%. The Reserve Bank of Australia paused a rate hike at both the July and August meetings. The RBA is confident that inflation will return to the 2%-3% target range over their projected timeframe.

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Currency and Bonds

The performance of the Australian Dollar (AUD) was mixed against the currencies of trading partners’ currencies. The AUD increased by 1.2% against the US Dollar and 0.2% against the Euro. It declined -0.5% against the Japanese Yen and -0.4% against the New Zealand Dollar.

The 10 year yields for the US and Australia displayed an upward trend, marking a rise of 0.14% to 3.95% and a 0.03% increase to 4.05% respectively.

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