July proved to be a very good month for markets. After a challenging first half of 2022, global equity and bond markets rallied strongly during the period. Somewhat paradoxically, it was concerns over global growth (and increasing recessionary fears) that helped to provide support to risk assets, as slower growth expectations helped to temper the extremely high interest rate expectations. As did comments from Federal Reserve chairman Jerome Powell at the July Federal Open Market Committee meeting, recognising that the US economy is “softening”.

In Europe, economic growth concerns were exacerbated by the reduction in gas supplied from Russia. Despite initially returning to the 40% of capacity seen prior to the planned maintenance of the Nord Stream 1 pipeline, supply was further reduced to 20% of capacity by the end of the month. The increasing weaponisation of energy supplies by Russia shows just how urgently Europe needs to reduce its dependency. In the short term, however, we are likely to see increasing restrictions on energy usage in European countries, which will naturally hinder economic activity.

Continued lockdowns in China as a result of COVID-19 cases in and around Shanghai weighed on risk appetite and further dampened growth expectations for the region. The Chinese Politburo also made it clear in July that its zero-COVID-19 policy was here to stay and a large stimulus to combat the slowdown in growth was unlikely. So while bad news was good news for developed market risk assets, the same could not be said for emerging markets.

Global equity markets (+7.1%) were up sharply on the month. A large weighting to the technology sector benefited US equities (+9.3%), while emerging markets equities (+0.1%) were held back by the big decline in Chinese stocks. In terms of style, the interest rate sensitive growth stocks (+10.2%) outperformed the more value / cyclically (+4.0%) orientated equities, as recessionary concerns pushed bond yields lower. This was to some extent also reflected in sector performance, with information technology (+12.2%) the best performing area, followed by consumer discretionary (+11.9%) and industrials (+9.0%). At the other end of the spectrum, communication services (+1.8%), healthcare (+3.2%), and materials (+3.4%) sectors lagged the most.

Within fixed income markets, despite concerns over growth, credit outperformed government bonds over the period. Looking at the detail, global government bond prices rose (+2.2%) on reduced interest rate expectations. Global investment grade credit (+3.4%) generated a positive return over the month as spreads tightened, and at the riskier end of the credit spectrum the same was true, with global emerging market debt (+3.2%) and global high yield (+6.0%) also rallying strongly during July.

In terms of real assets, property markets performed in line with equities over the month, with the global REITs index (+7.0%) up over the period while global listed infrastructure (+6.0%) slightly lagged. Commodities (+4.3%) rose for yet another month (+23.5% year to date), led primarily by natural gas (+52.9%) as a result of increased supply restrictions of gas from Russia to Europe. Crude oil (-4.2%) fell on the back of global demand concerns, while at the same time gold (-2.3%) was weak as a result of improved risk appetite.

FTSE 100 7169.28 7423.43
DJ Ind. Average 30775.43 32845.13
S&P Composite 3785.38 4130.29
Nasdaq 100 11503.72 12947.97
Nikkei 26393.04 27801.64
£/$ 1.2178 1.2171
€/£ 0.86093 0.83934
€/$ 1.0484 1.022
£ Base Rate 1.25 1.25
Brent Crude 109.03 103.97
Gold 1807.27 1765.94

This month’s values quoted as at 29/07/2022. The above values are sourced from Bloomberg and are quoted in the relevant currency.