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July Global Commentary: Global markets end July higher as inflation worries subside

Global equity markets rallied strongly for a second consecutive month (MSCI World +3.4% MoM) to leave them 19.4% higher YTD, with all the major global equity markets up for the month. Over half of S&P 500 companies reported 2Q23 earnings in July, with aggregate earnings c. 6% ahead of expectations, as the much-anticipated economic slowdown remained elusive. While strong equity market performance in 1H23 was concentrated in a small grouping of mega-cap tech companies and other potential artificial intelligence (AI) beneficiaries, the July rally was broad-based. Energy (+7.4% MoM) was the best-performing sector in July, enough to drag it into positive territory YTD as Brent crude oil bounced back above US$80/bbl for the first time since April rallying 14% MoM. The oil price was supported by pledges from Russia and Saudi Arabia to maintain supply cuts and optimism that China’s move to support economic activity would spur demand.

Chinese equities, particularly those listed offshore, were the standout performers for emerging markets (EMs) in July. The Nasdaq Golden Dragon China Index of US-listed Chinese companies (+20% MoM) and the Hong-Kong-listed Chinese companies tracked by the Hang Seng China Enterprises Index (+10% MoM) helped EM equities outperform developed market (DM) equities in July (MSCI EM +6.3% MoM). Chinese equities were amongst the worst performing in 1H23 but benefitted from improving sentiment in July, as a meeting of Chinese politburo members resolved to introduce a “counter-cyclical” policy and an “adjustment” of restrictions in the property sector as the government looks to revive economic activity in 2H23.

A key catalyst for the positive market sentiment in July was the release of lower-than-expected US inflation data for June (+3% YoY), the lowest reading over two years and the twelfth consecutive monthly drop in the gauge. Despite this, the US Federal Reserve (Fed) announced a 0.25% rate hike in the July meeting (as expected), pushing the US policy rate to its highest level since 2001. By mid-month, the US 10-year bond yield had fallen to 3.75% after the better-than-expected inflation data. Still, it pushed back towards 4% by month-end after 2Q23 US economic growth came in stronger-than-anticipated (2.4% QoQ vs expectations for 1.8% QoQ), and the Bank of Japan (BoJ) announced its intention to allow the long-term borrowing rate to move higher. The US dollar was weaker against most currencies in July, with the US Dollar Index (-1% MoM) falling for the second consecutive month and the eighth time in the past ten months.

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WEBINAR | The Navigator – Anchor’s Strategy and Asset Allocation, 2Q24

Anchor CEO and Co-CIO Peter Armitage will host the webinar, provide an introduction to current global and local market conditions and give his thoughts on offshore equities. Together with Head of Fixed Income and Co-CIO Nolan Wapenaar, Pete will also discuss Anchor’s strategy and asset allocation for 2Q24, focusing on global equities and bonds. In addition, Fund Manager Liam Hechter will provide insights into local equities, highlighting some investment ideas; Global Equities Analyst James Bennet will discuss Ferrari and give an update on Tesla, and finally, Analyst Thomas Hendricks will participate in a Q&A with Peter, explaining the 10-year US Treasury to attendees.