Originally published at: Monthly market roundup – July 2023 – InvestEngine Insights
Welcome to the latest edition of our monthly market roundups. This time we’re looking at the key topics from July, from equities to monetary policy. We’ll also take a look at some of last month’s more unusual market stories.
UK inflation and US interest rates were probably the headline figures from the month, with the first signs that inflationary pressures in the UK might be easing.
UK inflation fell to a 15-month low of 7.9% during the month, which was a lower rate of growth than the market was expecting.
This led investors to cut their expectations for future interest rate rises, with markets now predicting a 0.25% rise in August rather than a full 0.5% hike.
Aided by a drop in the cost of fuel, headline inflation was the lowest since March 2022, while underlying “core” inflation – which strips out the more volatile elements of the headline inflation figure, including energy and food – also fell slightly to 6.9%.
Core inflation had reached a 31-year high of 7.1% in the previous month, a level at which analysts had expected it to remain. Services inflation also eased to 7.2% in June from 7.4% in May.
In the US, headline inflation fell to 3%, down from 4% in May, and has been dropping since hitting a peak at 9.1% a year ago.
Interest rates continue to rise
In the US, The Federal Reserve raised interest rates by 0.25% on Wednesday to a new target range of 5.25% to 5.5% – the highest level since 2001.
The rate rise was voted through with unanimous support, marking a resumption of its most aggressive monetary tightening campaign in decades. The increase followed a brief reprieve at the previous meeting in June, when the benchmark rate was held steady.
Jerome Powell, the Fed chair, gave no clear guidance on whether rates would rise again at the next meeting in September. “I would say it is certainly possible that we would raise funds again at the September meeting if the data warranted,” he said. “And I would also say it’s possible that we would choose to hold steady at that meeting. We’re going to be making careful assessments meeting by meeting.”
The next Bank of England meeting to decide UK interest rates will be held on the 3rd August.
Equity markets continue their run
July was another strong month for equity markets, with all major markets posting positive returns.
Emerging Markets led the way, posting a 5.1% gain in July amid Chinese government announcements detailing plans to boost consumption and to ease restrictions on the property sector. Specifically, the government announced a raft of steps focused on the so-called ‘light industry’, which covers items from home goods, food and paper-making to plastic products, leather and battery.
The US also continued its run of strong performance, rising 2.1% in sterling terms and bringing year-to-date returns to an impressive 13.5%. As the US makes up around 60% of the global market, its performance has been a fantastic boost for global investors.
Growth was led by continued strong performance from the tech giants, including NVIDIA and Alphabet – both of which gained over 9% in July.
Europe has also been performing well this year, gaining a further 1.7% in July. The UK rose 2.2%, bringing year-to-date gains to 4.9%.
Bond yields begin to fall
As bond yields (particularly short-term bond yields) are closely tied to interest rates, the expected reduction in pace of UK rate rises caused UK bond yields to fall over the month.
The UK 2-year government bond (gilt) yield fell from 5.2% to 5.0%.
Longer-dated bond yields tend to be less affected by interest rate movements and are more dependent on macroeconomic factors, including economic growth and recessionary indicators. The UK 10-year gilt yield remained relatively static, seeing only a slight decline from 4.4% to 4.3%.
Versus the US dollar, sterling strengthened by 1.04% in July, rising from a rate of $1.2703 at the start of the month, and finishing at a rate of $1.2835.
Sterling’s rise over July was due in large part to the US dollar’s weakness, with the cooling US inflation figures reaffirming the market’s expectation that the Fed’s hiking cycle may be coming to a finish and thus limiting the upside for the dollar’s yield advantage over other currencies.
Versus the Euro, the pound was flat over June, finishing the month at €1.1671.
Off the beaten track
Now, let’s take a look at some of the more unusual market news stories from July.
Canadian court rules 👍 emoji counts as a contract agreement
Be careful before you casually dash off another thumbs-up emoji: A Canadian court has found that the ubiquitous symbol can affirm that a person is officially entering into a contract.
Don’t insider trade based on information from your girlfriend’s laptop
A New York finance worker is being charged for insider trading based on information he obtained from his girlfriend’s laptop while they were working at home during the COVID-19 pandemic. His girlfriend was employed as an Executive Assistant at a prominent New York-based investment bank.
The defendant provided his girlfriend with a device that moved her mouse while she was away from her computer, to prevent her laptop from locking. He then accessed her laptop while she was away—either out of the room or away from the apartment entirely. Using his access, he reviewed her Outlook application to find meetings relating to mergers and acquisitions of public companies and bought call options based on the information.
Shopify quantifies the cost of pointless meetings
The Canadian e-commerce company has rolled out a calculator embedded in employees’ calendar app that estimates the cost of any meeting with three or more people.
The tool uses average compensation data across roles and disciplines, along with meeting length and attendee count, to put a price tag on the event. A typical 30 minute endeavour with three employees can run from $700 up to $1,600. Adding an executive — like Chief Operating Officer Kaz Nejatian, who built the program during a company-wide hack day — can shoot the cost above $2,000.
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(Photo: Matthew Horwood/Getty)