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Quick TakeMarkets climb as earnings and trade progress offset policy headwinds: Global equities posted modest gains in July, with the S&P 500 up 2.24%, the Nasdaq up 3.72% and the ASX 200 up 2.36%, as strong earnings, easing trade tensions and AI momentum outweighed rising bond yields and reduced hopes for near-term rate cuts. Central banks hold firm as inflation pressures linger: The Federal Reserve and European Central Bank left rates on hold, with both signalling a cautious approach. Hawkish messaging and mixed inflation data contributed to a reassessment of the policy outlook, while Australia’s RBA also paused but maintained an easing bias. Trade deals struck ahead of tariff deadline: New trade deals between the US and key partners, including the European Union and Mexico, reduced the risk of an abrupt return to broad-based tariffs. While some elevated tariffs remained in place, the agreements provided clarity and helped support investor sentiment globally. |
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Snapshot
Global equity markets posted modest gains in July, with sentiment supported by improving trade clarity and a solid start to earnings season, even as expectations for near-term rate cuts diminished and geopolitical uncertainty persisted. Major indices moved higher overall, although momentum was somewhat restrained by hawkish central bank signals, a stronger US Dollar, and emerging concerns around the impact of newly implemented tariffs.
In the US, the S&P 500 rose 2.24% and the Nasdaq gained 3.72%, extending their respective winning streaks to three and four months, and reaching fresh record highs. Markets were buoyed by a strong earnings season, easing trade tensions, and continued AI momentum, even as bond yields rose and speculation grew that rate cuts may be delayed. Notably, the Federal Reserve held rates steady in July, but the tone of the meeting leaned hawkish, with no clear signal of near-term cuts and the first time since 1993 that any members of the committee voted against the majority decision. Meanwhile, a flurry of trade agreements in the final days of the tariff truce helped alleviate investor fears, particularly after a 90-day extension was granted to Mexico. Although tariff levels remain elevated, markets welcomed the reduced uncertainty and focused instead on the relative strength of the domestic economy and the potential for tariffs to have a narrow sectoral impact.
In Europe, the STOXX 600 rose 0.99% in July. The key development was the finalisation of a US–EU trade deal ahead of the 1 August deadline, which brought relief by averting an all-out trade war, even as it introduced new tariffs on a broad range of goods. While the agreement was welcomed for removing near-term risk, concerns remain about longer-term growth impacts, particularly for export-oriented sectors such as autos, pharmaceuticals, wine and spirits, and chemicals exposed to elevated US tariffs. The European Central Bank kept rates on hold, as expected, and signalled a willingness to wait for further economic signals before adjusting policy. Markets appeared to shift focus toward company earnings, with strong results from sectors such as banks and travel providing support, despite broader concerns around weakening demand and the impact of tariffs on industrial inputs and consumer goods.
Back in Australia, the ASX 200 rose 2.36% for its fourth consecutive monthly gain, reaching a fresh all-time high early in July before moving sideways into month-end. Optimism was supported by growing expectations of further interest rate cuts, particularly following softer-than-expected quarterly inflation data, which bolstered the case for RBA easing in August. The Reserve Bank held the official cash rate steady in July in a 6-3 split decision, signalling that an easing bias remains in place. Within the local economy, labour market strength and stabilising consumer demand helped offset weaker signals elsewhere.
Overall, July was characterised by cautious optimism tempered by evolving trade policy, tighter financial conditions and mixed macro data. While equities continued to edge higher, the backdrop remains evenly balanced, with investors focused on central banks, earnings, and the second-order effects of a shifting global trade regime.
Key Stocks
Ryan joined Cutcher & Neale as a Portfolio Manager in January 2023, with over 15 years' experience managing multi-asset investment portfolios, specialising in fundamental equity analysis. Ryan holds the Chartered Financial Analyst (CFA) designation and is Chairperson of the Cutcher & Neale Investment Committee, which oversees clients' Australian Share, International Share, Fixed Income and Cash exposures.
