Insight

Monthly Market Roundup cov. July 2022

Monthly Market Roundup
Overview
1
July was a better month for global equities as many markets around the world posted gains.
2
Europe, the UK, the US fixed income saw positive movements, while Asian equities recovered from a slow start.

July saw a change of fortunes for some equity markets around the world amid what continues to be a challenging environment. European, UK, US and Fixed Income markets all rallied, while Asia and emerging markets lagged.  

In contrast with recent months, European equities ended July with the best monthly performance of 2022 so far.

Gross domestic product (GDP) grew by more than initial estimates, largely driven by tourism in Spain, Italy and France.

Inflation hit a new record high of 8.9%, and the European Central Bank raised rates by 0.5% for the first time in more than 10 years.

UK equity markets also ended the month up, also posting the strongest performance of the year so far. GDP grew by 0.5% between April and May.

There was political turmoil as prime minister Boris Johnson announced his resignation. The race to elect his successor is down to the final two candidates – Rishi Sunak and Liz Truss.

High inflation persists, hitting a new 40-year high, above consensus. The Bank of England toughened it’s stance on monetary policy, indication the potential for a further interest rate increase of 0.5% in August.

Things were looking up in the US as well, as markets here advanced in July. This is believed to be a reaction to the potential for softer monetary policy (where interest rate rises are less aggressive) from the Federal Reserve (Fed).

The Fed is currently committed to a further 0.75% hike though, to fight rising costs. This would make a total of 2.25% this year alone.

Recession fears persist with talk of the US economy being in a technical recession sparked by two consecutive quarters of negative growth. Others point the uncommonly low unemployment rate as a sign to the contrary. 

There were marginal gains in Asia, but the region lagged the rest of the developed world. China and Hong Kong underperformed, which offset gains elsewhere.

Increasing macroeconomic concerns held back China, despite a positive re-opening outlook post-Covid, with the estimated 2022 GDP target cut.

Technology led a recovery from a volatile start in Taiwan. But India was the top-performer with all sectors bar energy posting positive gains.

In a shift from recent performance, emerging markets (EM) significantly underperformed the rest of world. They were able to rally in the second half of the month though, as sentiment in China improved.

Latin America advanced, led by Argentina and Chile. The latter was able to bounce back from underperformance in June. Mexico and Colombia were the only two countries to retract.

EM Europe, Middle East and Africa (EMEA) also posted positively, outperforming the broader region. Qatar and Saudi Arabia were the biggest gainers here.

After a tough few months for fixed income markets, July was more positive. Both sovereign and corporate markets recovered strongly.

Following a difficult half one, corporate bond markets witnessed a shift in sentiment during July. In the UK, eurozone and US, both investment grade and high yield bonds gained.

A ‘technical recession’ (because of two consecutive quarters of negative growth) in the US meant that 10-year instruments in the US, Germany and the UK declined.

The energy crisis remained in focus last month as countries prepare for the expected shut off of Russian gas and the implications for their domestic grids.

The EU released plans which called for a reduction in gas demand to safeguard supplies going into winter. It announced a mandate and will look to substitute gas for other fuels.

Elsewhere, many countries are looking at their own plans to reform energy. France announced it’s to fully nationalise EDF. In the UK, it’s the electricity market that’s under the microscope, in terms of supporting decarbonisation and energy security.

Download as PDF