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Market Update

July 2018

Equity markets deliver positive results in July despite global trade issues

Relations between the United States and China remained tense in July as each country announced trade sanctions on the other. Trade sanctions and higher tariffs can potentially have a major impact on a nation’s economy, especially for countries that export a lot of goods, such as China. However, it can take some time before the effects are felt, so the global economic data reported in July was generally healthy and global equity markets moved higher (equities are also known as company shares or stocks).

The United States was one of the stronger-performing markets, helped by solid economic gains and the robust earnings reported by US corporations. The S&P 500 Index, which is used as a measure of US stock performance, gained 3.7% in US-dollar terms, as the majority of companies that reported second-quarter results during the month exceeded expectations. Among the names in focus, Alphabet, the parent company of Google, was boosted by well-received results, although it was also the subject of a heavy competition fine from the European Commission earlier in July. Meanwhile, Facebook disappointed market participants with slower-than-expected user growth figures. The US economy grew by 4.1% for the year that ended 30 June and industrial production improved. However, the unemployment rate ticked up slightly, to 4%, as the US work force expanded.

At its meeting in July, the European Central Bank maintained its pledge to phase out its economic stimulus programme by the end of 2018 and to keep interest rates low through mid-2019. Trade tensions between Europe and the United States eased as both sides aimed for zero tariffs in future. This helped equities in Europe perform well for the month.

In the UK, the FTSE All-Share Index, which measures the performance of UK equities, advanced 1.2% over the month. Ongoing issues relating to Brexit led sterling lower compared to the US dollar. Inflation was expected to rise to 2.6% over the year to June, but it remained at 2.4% for the third month in succession. After rising by 1.4% in May, retail sales fell by 0.5% in June. Economists had expected 1.3% growth. However, more positively, the unemployment rate remained at a multi-year low of 4.2%.

Equities in emerging markets – those countries whose economies are still developing – made small gains in July, after some difficult months in the first half of the year. Brazil and Mexico were among the top gainers, as local political worries in each country eased. India, Thailand and Poland were also notable positive performers. Elsewhere, China’s equities struggled, given the ongoing trade dispute with America. Its currency, the yuan, declined against the US dollar, and the country’s authorities announced tax cuts and funds for infrastructure projects. Turkey’s equities were also weak. During the month, the Turkish central bank surprised market observers by keeping its interest rates at the same level, despite currency weakness and rising inflation.

In terms of major benchmark government bonds, the US 10-year Treasury yield moved higher (and the price fell back) over July, edging towards the 3% mark. In the UK, the 10-year gilt yield advanced amid rising expectations for an August rate increase from the Bank of England’s Monetary Policy Committee. Changing market predictions about the Bank of Japan’s (BoJ) likely policy direction was a key influence on bond markets, as anticipation of higher interest rates was eventually dashed by the BoJ’s reiteration of its intention to continue with stimulus measures. Emerging-market bonds followed their equity counterparts higher. Global corporate bonds (those issued by companies rather than governments) generally had a positive month as trade fears were put to one side amid a strong showing for corporate financial results.

Crude oil prices fell in July on expectations that a number of oil-producing countries were looking to increase supplies. The price of gold slipped, as the US dollar gained ground (traditionally, a lower US dollar means a higher gold price, and vice versa). Prices for base metals (non-precious metals such as copper, nickel, and zinc) at first moved lower because of trade worries but then improved, in part because Europe and the United States made headway in their trade negotiations.

Sources: Equity-market returns from Financial Express

Should I make any changes to my investments?

Everyone’s circumstances are different and we aren’t able to give you advice on what is appropriate for you. As always, if you are considering your own position, you should remember why you invested in the first place and consider the lifespan of your investments.

One way in which you can help reduce the impact of any market volatility is to spread your investments across different asset classes and regions. For more information about investing across different asset classes take a look at our Introduction to diversification in multi-asset funds guide.

Remember that before making any changes to your investments, you should seek financial advice. If you don’t have a financial adviser, you can find one local to you by visiting Speak to an expert , which is responsible for promoting financial advice in the UK.

All figures quoted are in sterling terms to 31 July 2018 unless otherwise stated.