Encouraging news on the inflation front propelled equity markets higher in July with the Australian market recording a healthy 3% return driven by solid contributions from the energy and banking sectors. Other world markets posted similar gains with the US up 3.4%, the UK 2.2% and Europe 1.3% stronger. China was the standout improving 10% based on expectations that the government is likely to use both fiscal and monetary measures to kick start their economy which has struggled since COVID restrictions were removed.
The US bond market weakened during the month with the US 10-year treasury yield increasing 14 basis points to 4% following yet another 25-basis point increase in the Fed funds rate. The failure by the US government to heed warnings about profligate deficit spending saw Fitch downgrade the credit rating for US sovereign debt. The US is now forecast to spend a staggering $780 billion per annum on servicing interest on accumulated debt in 2024, the largest non-military component of their annual budget. The Australian bond market was basically flat over the month to close at parity with the US as the RBA decided to hold rates steady to assess the economic impact of past rate increases.
Commodity markets were generally stronger particularly in the energy sector where oil was up 13%, thermal coal 7% while gold was 4.1% higher. The Australian dollar improved marginally against the US dollar advancing by 1.2% to close the month at just over US 67 cents.