Equity markets recovered much of their lost ground from last month with most major markets posting healthy gains during July. A firmer bond market was the catalyst for a stronger US equity market which advanced by 9.1%, the strongest monthly return since July 2020. The technology heavy NASDAQ performed even better rising by an impressive 12% as long duration tech company earnings are particularly sensitive to bond yields. The Australian market also fared well improving by 5.7%, Europe advanced 7%, the UK 3.5% with the only laggard being China which fell by 9.3% on concerns about a slowing economy particularly in the property sector.
Bond markets rallied on expectations that slower economic growth would moderate inflation concerns with US 10-year yields firming by 33 basis points and Australian 10-year bonds 60 basis points lower. Even though inflation data around the world continues to print at unacceptably high levels, the bond market rally in July seemed to reflect a belief that inflation would begin to moderate. Global central banks continue to raise cash rates as expected with the US Fed and the Australian Reserve Bank increasing cash rates by 75 points and 50 basis points respectively.
Commodity markets were generally weaker with crude oil falling 8.2% and iron ore down 17.5% on slower Chinese demand. The exception was natural gas which advanced an incredible 52.6% on expectations of supply shortages in Europe associated with the Russian Ukrainian war.
The Australian dollar firmed marginally against the USD due to healthy trade surplus to finish close to 70 US cents.