July was the month we saw the inflation narrative take a back seat to concerns global growth could take a hit from the resurgent COVID Delta strain. Last month’s fears of central banks tapering asset purchases have been put to one side, as investors see dovish signals and comments from central bank heads, driving equity prices up and bond yields down for the month.
Major world indices mostly rallied in July with the three major US indices seeing all-time highs. European and UK markets were mostly flat for the month after all having a strong run up in the last quarter. Asia/Pacific markets were mixed with Australia’s ASX 200 outperforming while the Chinese and Hong Kong stocks moved sharply down on the back of Chinese Government regulatory action which saw stocks battered in the education, property and tech sectors.
July saw US Q2 reporting season kick off and strong earnings have helped propel US indices to all-time highs. The tech heavy NASDAQ outperformed as tech giants Facebook, Apple, Google and Microsoft have all reported stellar earnings giving investors confidence the global economic recovery is still on track. Despite these highs we did see a drop in upward momentum in equity markets. Resistance has been seen at these elevated levels, which is especially evident in European and Australian markets, as investors digest the possibility of the wheels coming off the global recovery as COVID cases surge in many developed nations.
The Greenback modestly outperformed most major currencies In July. Safe Haven currencies the JPY and CHF were the strongest performers of the month as we saw some risk off with some brief sharp drops in equity markets. The GBP also performed well as ‘Freedom day’ finally came to the UK mid-month – almost all COVID lockdown restrictions were lifted, buoying confidence in a sharp uptick in the UK economy’s future growth. Risk and commodity sensitive currencies the AUS, NOK and CAD fared the worst as volatility in the oil and equity markets weighed on them.
Oil whipsawed throughout July and is set for only the second monthly loss since October 2020. A resurgent COVID virus coupled with an OPEC+ agreement to boost output from August to heavily weigh on oil prices for the first half of the month, with the fast-spreading Delta variant raising concerns about short-term demand. Adding to this, the long-term resistance level of $77 was touched on and rejected. We’ve seen a strong bounce back in prices during the second half of the month though, as larger than expected inventory draws show that demand now remains strong.
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