Insight

Monthly Market Roundup cov. July 2023

Monthly Market Roundup July
Key takeaways
1

Interest rate rises in UK, US and Europe as inflation continues to fall. 

2

Global equities rose, but emerging markets were the top performers.

3

European government bonds fall, corporate bond markets were up. 

Summary

July saw widespread gains for equity markets around the world. Inflation looks to be moderating in the UK, US, and Europe. Not for the first time, emerging markets outperformed developed markets. Asian markets were spurred as China returned strong gains, thanks to government policy easing and the possibility of further market stimuli. Inflation in the UK fell to its lowest level in well over a year, and the eurozone returned to growth in quarter two, after two consecutive quarters of decline.

European equities put on a strong performance in July, ending the month in positive territory. The consumer discretionary and energy sectors performed best, while utilities and information technology stocks lagged.

Eurozone inflation continued to fall, hitting 5.3% in July from 5.5% in June. A slowdown in food, energy, tobacco, and alcohol prices all contributed to the decrease. The European Central Bank (ECB) increased interest rates again though, in its continued commitment to bringing inflation back to target levels.

The eurozone also returned to growth in the second quarter of the year, after a contraction in the previous two quarters. Overall, the region grew by 0.3%. On a regional level, French and Spanish markets grew, while Germany remained flat. Italy experienced a contraction. 

UK markets also ended July on positive ground, boosted by better-than-expected inflation readings and upbeat corporate earnings data.

Inflation in the UK finally showed signs of easing up by falling to 7.9% in June (down from 8.7% in May). This is the lowest it’s been since March 2022. The Bank of England increased interest rates by 25 basis points in August, instead of the expected 50 basis points.

Office of National Statistics (ONS) data showed that the UK economy contracted by 0.1% in May, which was less than expected. It’s believed that the extra bank holiday contributed to the fall, while rising borrowing costs put extra pressure on household budgets.

US markets ended the month up, with the S&P 500, NASDAQ and Dow Jones ending higher. Lower than expected inflation boosted hopes that interest rate hikes in the US would soon end.

After pausing interest rate hikes in June, the Federal Reserve (Fed) raised them in line with expectations in July, at 25 basis points. This is the highest level in 22 years.

Headline inflation data came in at 3%, which was below expectations and a big drop from the previous figure of 4%. Core inflation remained a little stickier, but markets were boosted, as hope grows for the outlook of the US economy.

Asian equity markets delivered healthy returns, with gains led by China. The gains were largely supported by government policy easing (like cutting lending rates) and market optimism around the potential for further stimuli. Positive inflation news from developed markets helped the MSCI Asia ex Japan index to post strong returns.

Indian equity markets rose over the month as the economy continued to show signs of resilience. The Mumbai Sensex 30 index was positive, with equity markets responding well to global cues. Indonesia equity markets also rose, despite mixed results on a sector level.

Despite gaining in June and being amongst some of the top performer’s year to date, Japanese equities lagged. The key news out of Japan was the Bank of Japan’s (BoJ) decision to allow yields to rise more freely, in other words loosening the BoJ yield curve control framework.

Emerging markets equites outperformed markets in the developed world in July. All regions posted positive gains with performance in emerging Europe led by Turkey, Asia driven by China and Africa and the Middle East led by South Africa.

Latin America markets were up with markets in Brazil, Chile, Mexico and Argentina all finishing the month positive. Brazilian equity markets remained resilient supported by gains in materials and energy.

After a weaker month in June, Turkish equities were up. Investor optimism improved after Turkey’s central bank adopted a more mainstream approach to economic management. In Mid-July the central bank increased interest rates to 17.5%, a 2.5 percentage point rise on the previous month. Equity markets in Poland, Greece and Czech Republic were also positive in July.

European government bonds came under pressure, with German bunds returning -0.35% as the European Central Bank raised its deposit rate to an historic high of 3.75% and kept its options open on whether more increases will be needed to bring down inflation.

It was a positive month for corporate bond markets. Sterling credit led the gains with the ICE BofA Sterling Corporate Index returning 2.38%. By comparison, the Euro Corporate Index gained 1% and the US Corporate Index added 0.43%.

High yield bonds also delivered monthly gains with the ICE BofA European Currency (€/£) returning 1.22% and the US High Yield Index gaining 1.42%. 

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    Monthly Market Roundup cov. July 2023

    By Invesco

    In our monthly market roundup for July, Invesco experts give a rundown on a fairly positive month for global stock markets, plus a view on the bond markets.