July Commentary
GLOBAL MARKETS
Most asset classes remained in high volatility territory. Central banks continue to tighten monetary policy to cool inflation, even at the risk of tipping economies into recession
US MARKETS - US equity markets encountering inflation headwind
The US equity market was down over 8% for the second month this quarter, a month in which the Fed raised interest rates by a further 75bps. US first-quarter GDP was revised down, but it was the sharp downward correction in consumer spending which unnerved investors, with US inflation showing little sign of abating. The May monthly US CPI jumped to 1.0% from 0.3% the previous month, pushing the year-on-year CPI to 8.6%, with the Purchasing Managers Indexes (PMI) steadily falling. Down -8.4% (US 500)
EUROPEAN MARKETS - European markets deal with ECB’s delayed inflation response
European equity markets fell on the back of annual CPI inflation in the area hitting 8.6%, driven by record energy prices. The ECB’s Lagarde sent a clear signal that rate rises will begin in July, their first rate rise in 11 years. Europe’s dependency on Russian gas supplies remains a key risk, with the added concern that Russia may begin to ration or reduce gas supplies. Down -8.2% (Euro 600 Index)
UK MARKETS - Low consumer confidence contributes to falling markets
UK equity markets were down heavily, particularly in mid-caps. The Bank of England raised rates by a further 25bps to 1.25% and UK CPI YoY inflation reached 9.1%. British manufacturing (as shown by Manufacturing PMI) slowed to a two-year low, and consumer confidence is at a record low. Rising food and energy costs, coupled with rising borrowing costs such as mortgages, means the average UK household has seen negative wage growth.
Down -6.2% (UK All Share)
ASIAN MARKETS - China’s lifting of restrictions could not carry emerging markets
Along with other markets, emerging market equities fell on the back of recession worries. China’s easing of restrictions improved market sentiment for the region at month-end, and helped to lift commodity linked stocks. An increased production and output from China could be an important prop for the rest of the world. China export orders rose ahead of expectations. Down -7.1% (Asia Index)