July delivered a rare bright spot for UK investors: as global markets stumbled, UK equities surged 3.6%. But with inflation, oil and interest rates still pulling in different directions, can the UK’s outperformance last?
UK
- UK inflation surprisingly fell to 2.6% (forecast 2.7%) for year to June. 15 month low, but expected to rise in July with ending of the energy price cap.
- The UK Composite PMI (indicator of business activity, >50 is expansionary and <50 is contraction) grew to 52.1, increasing from 49.7 in the previous month.
- UK equities posted strong gains over July, gaining +3.6%.The only major developed market that advanced in July, with thanks to high energy and low tech exposure.
- UK unemployment decreased to 4.9%, down from forecasts of 5.0%.Despite this, youth unemployment remains an issue with 14.5% of 18-24 year olds unemployed.
- The Bank of England maintained interest rates at 3.75% (6 hold votes, 3 hike). Bailey noted that ‘rate path is war dependant’.
Global
- Global equities fell -1.3% in July.AI sentiment is a key driver of the global market is exposed to any sell offs in the sector.
- US equities sold off -1.4% on the back of two positive months. The tech heavy index was hurt by the NASDAQ’s poor performance of -6.6% due to an AI sell-off.
- Kevin Warsh’s second meeting as Fed Chair led to rates being held (consensus). The vote was 6 holds vs 3 hikes, with the of the dissents expected and the third a surprise.
- Japanese equities (Nikkei 225) fell -8.1% in July. Large exposure to tech hurt the index. A four-decade weak Yen has returned following government intervention earlier in the year.
- EM equities retreated -0.6% in July. AI dominates this index and the South Korean KOSPI recorded a record 17.9% gain on the 31st of July, helping limit losses.
- In Europe, equities fell -0.5% in July. Europe is an industrial-heavy index and a rising oil price acts as a headwind, but it benefits from lack of AI exposure.
Fixed Interest
- Global government bonds saw prices fall and yields rise throughout July, mainly attributable to a rising oil price and inconclusive Iranian negotiations.
- UK yields rose throughout July as oil price rose over the month. Gilt market reacted fairly neutral to Burnham becoming PM. 10yr Gilt closed at 5.14%.
- US Treasuries prices fall despite inflation coming in cooler than expected for June (3.5% vs 3.8% forecast). Warsh persists with tight-lipped commentary position. 10yr treasuries closed at 4.69%.
- Government bonds remain under pressure due to a volatile oil price, as well as debt-loaded balance sheets, particularly in the US.
Other
- Sterling rallied against the dollar moving from $1.32 to $1.35 over the month. GBP/EUR held at €1.17.
- Oil prices rebounded sharply +24% in July, having lost -23% in June and -19% in May, closing at $90/bbl. Bombing led to the price rise as negotiations stumble.
- Gold was broadly flat in July, having fell -10% in June. The asset is non-yielding, resulting in ‘higher for longer’ bond yields acting as a price ceiling.
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This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
