Market Key Points
- The US made progress on trade agreements with major economies, including a pause on extreme tariffs targeting China.
- Emerging markets continue to rally, while growth stocks performed strongly across developed markets.
- Hard macroeconomic signals remained broadly resilient in July, with investors continuing to look to how US policy changes will interact.
Australian equities
The S&P/ASX 200 Accumulation Index extended its rally in July, gaining 2.4% and bringing its 12-month return to 11.9%. Equity markets remained strong ahead of the local earnings season, despite ongoing global uncertainty from US-led trade negotiations and persistent geopolitical tensions. Sector performance was broadly positive, led by Health Care (+8.8%) as investors favored defensive, high-quality stocks amid economic uncertainty. Other top performers included Energy (+5.4%), Utilities (+5.1%), and Information Technology (+5.2%), while Financials (-1.0%) declined as investors rotated away from banks into resources.
Among individual stocks, Clarity Pharmaceuticals (CU6) surged 74.8%, topping the S&P/ASX 200 after completing initial study enrollment and securing a $203 million institutional placement. Mesoblast (MSB) and Iluka Resources (ILU) gained 43.8% and 35.5%, respectively, following strong quarterly updates and strategic investments. Conversely, Boss Energy (BOE) was the worst performer, plunging 62.7% after its CEO announced plans to step down, disappointing guidance for Honeymoon, and concerns over disclosure transparency.
On the economic front, Australia’s unemployment rate rose to 4.3% in June, above expectations and marking the highest level since November 2021, with a 33,600 increase in unemployed persons. The RBA surprised markets by holding the cash rate at 3.85%, despite expectations of a cut, while signaling that further easing remains likely. Inflation continued to slow, with CPI rising 1.9% in June—the lowest since March 2021 and below the RBA’s 2–3% target range.
Global Equities
Global equities posted another positive month in July, with Developed Markets rising 3.1% (MSCI World Ex-Australia Index, AUD). US equities slightly underperformed after a strong June, with the S&P 500 up 2.2%, reaching record highs as optimism grew around potential trade agreements with China, India, and South Korea and expectations of strong earnings results. Growth stocks (+2.8%) outperformed Value (+1.2%), while Quality (+0.4%) and Momentum (+0.2%) factors also delivered gains. Global small caps outperformed, returning 3.0%.
European markets were broadly positive, supported by progress in tariff negotiations, with the EU agreeing to a 15% tariff rate with the US and inflation holding steady at 2.0%. Germany’s DAX rose 0.7%, while the UK’s FTSE 100 surged 4.2%.
The US Federal Reserve kept rates unchanged at 4.25–4.50% for the fifth consecutive meeting, though two governors dissented in favor of a cut—the first such dissent since 1993. Inflation rose to 2.7% in June, its highest since February but in line with expectations, while retail sales grew 0.6%, beating forecasts. ISM PMI metrics remained below 50 at 48, signaling continued contraction in manufacturing and services activity.
Commodities posted broad gains, with the S&P Goldman Sachs Commodity Index up 2.0%. Oil rallied 6.4% on Middle East tensions, while gold slipped 0.4%, though its 12-month gain remains strong at 34.4%. Iron ore rebounded sharply, climbing 10.6% in June and 2.7% over the past year, supported by improved mill output.
Emerging Market Equities
Emerging market equities outperformed developed markets in July, gaining 3.8% (MSCI Emerging Markets Index, AUD). China rallied as trade concerns eased, with the CSI 300 up 3.5%. Economic data was stronger than expected, with first-half GDP growing 5.3% year-on-year, above the 5.0% target. Industrial production rose 6.8% in June, beating forecasts of 5.6%, while the Caixin manufacturing output PMI climbed above 50, signaling expansion despite weaker export orders.
Emerging markets were supported by mixed USD performance amid trade uncertainty and concerns over the rising US deficit linked to President Trump’s “Big Beautiful Bill.” The US Dollar Index rose 1.0% over three months, with USD/AUD down 0.2%, USD/EUR down 0.1%, and USD/JPY up 5.9%. Elsewhere in Asia, Japan’s Nikkei 225 gained 1.4%, more modest than June, as negotiations confirmed a 15% tariff on Japanese goods, including vehicles.
Fixed Income
Global financial markets were more stable in July compared to June, supported by signed trade agreements and no escalation in geopolitical tensions, though risks remain elevated. The US Federal Reserve held rates steady for the fifth consecutive meeting at 4.25–4.50%, maintaining its “wait and see” stance as fiscal concerns persist amid additional spending announcements. U.S. 10-year Treasury yields ended July unchanged at 4.23%.
In Europe, yields moved higher as growth sentiment improved. UK 10-year Gilt yields rose 7 basis points to 4.57%, supported by strong wage growth and services inflation. French yields climbed 7 basis points to 3.34%, while Germany’s Bund yield increased 9 basis points to 2.69%. In Japan, the Bank of Japan kept rates at 0.50%, the highest since 2008, as inflation eased to 3.3%, its lowest since October 2024. Japanese 10-year yields rose 12 basis points to 1.55%, following political uncertainty after the LDP lost its upper house majority.
Domestically, the RBA’s decision to hold rates at 3.85% surprised markets, especially after weak employment data and easing inflation late in the month, increasing the likelihood of a cut in August. Markets still expect two to three cuts by year-end, potentially lowering the cash rate to 3.10%. Australian bond yields declined, with the 10-year yield down 5 basis points to 4.21%.
Property and Infrastructure
The S&P/ASX 200 A-REIT Accumulation Index continued its upward trend, rising 3.3% in July and lifting rolling 12-month returns to 10.2%. Global real estate equities underperformed, falling 0.2% (FTSE EPRA/NAREIT Developed Ex Australia Index, AUD Hedged), while global infrastructure gained 1.3% (S&P Global Infrastructure TR Index, AUD Hedged).
Australia’s residential property market maintained growth, with the Cotality Home Value Index (covering eight major capitals) up 0.6% in July. Darwin led gains at +2.2%, while Sydney (+0.6%) and Melbourne (+0.4%) posted solid increases, and Hobart (+0.1%) continued to lag.
This article contains information first published by Lonsec. Voted Australia’s #1 Research House for 2019.
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