Sabco® Investment's Monthly Market Report - July, 2023

Sabco® Investment's Monthly Market Report - July, 2023

In July, equity markets showcased universal positivity. Leading the pack was the US stock market, fueled by economic indicators pointing towards a possible "soft landing" and diminishing inflation. As a result, the S&P500 marked its fifth straight positive month. Emerging markets, with a spotlight on Chinese stocks, bounced back, bolstered by the Chinese government's new strategies to bolster the real estate sector and consumer spending. Europe trailed a bit, yet the Stoxx Europe 600 scaled its highest peak since early 2022, despite some lukewarm economic data and uninspiring Q2 corporate earnings. US corporate results, though less surprising than prior quarters, painted a promising picture for upcoming quarters.

The tempered inflation combined with steady growth led to a broader market upturn, contrasting the early-year trend dominated by tech companies connected to artificial intelligence. Cyclical stocks outshone defensive ones, particularly in Europe. Real estate emerged as the top performer, rebounding after prior dips, thanks to a steady interest rate forecast. Expectations of Chinese stimulus measures lifted commodity stocks.

July's US bond yields swayed with shifting investor sentiments around future monetary policy. Mixed data influenced views on lasting inflation and implications for the Federal Reserve's extended high-rate policy. US 10-year rates exceeded 4%, and the 2-year rate, more reflective of short-term rate expectations, surpassed 5%. German 10-year yields echoed these movements, steadying around 2.5%. Japan's 10-year bond yields hit a zenith since September 2014, following the Bank of Japan's policy adjustments.

For corporate bonds, July noted a decline in spreads, both for investment-grade and high-yield, mirroring the improved sentiment in the equity market's riskier sectors.

After a hiatus in June, the Federal Reserve elevated its primary rate by 25 basis points, placing the policy rate range at its 22-year high. While a subsequent hike is under contemplation, market consensus suggests the cycle's pinnacle might be reached. Concurrently, the ECB upped deposit rates by 25 basis points to 3.75%, signaling a potential halt in September. The bank's focus shifted to data dependency due to a gloomier growth perspective. The Bank of Japan caught attention with its more adaptable approach to yield curve control.

The US dollar fluctuated in July, starting weak but recovering slightly due to favorable economic indicators, eventually recording a minor decline against the euro. Norway's krone bolstered by nearly 5% against the euro, propelled by inflation data and a rise in oil prices. Meanwhile, the Japanese yen initially strengthened post the Bank of Japan's policy announcement but relinquished some gains later on.

Oil prices surged (Brent by 14.2% in USD) in July, fueled by production curbs in key regions, a resilient US economic stance, and potential Chinese stimuli. Factors like global economic slowdown and possible production hikes in certain regions offset this growth. Industrial metals also observed a price rise, driven by hopes around Chinese fiscal support and stability in developed economies. Gold's price ascended marginally, buoyed by the nearing end of central banks' monetary tightening phase.