Global markets are rapidly changing month-to-month due to various interconnected factors influencing supply and demand, investor sentiment, economic conditions, and ongoing geopolitical events.
Due to the speed and nature of global market changes, it can be difficult for UK expats and investors to keep up to date with the current economic landscape without studying them on a day-to-day basis.
Our monthly market update aims to provide you with a clear and easy-to-understand overview of the global market landscape, highlighting a few important changes in several key markets across the globe, which might affect you and your investments.
Global Market update: July 2023 Overview
The market felt more positive in July compared to the start of 2023, thanks to a drop in inflation in developed countries and stronger GDP data.
Firstly, global stocks performed well, with the world index rising by 3.7%. Developed markets gained 3.4% in July, but higher-risk sectors and regions saw the best growth. Small-cap stocks were up by 4.9%, and Emerging Markets by 6.3%.
Fixed income also saw positive returns, with global bonds gaining 0.7% for the month. A surprise drop in the UK’s June consumer price index (CPI) benefited Gilts (UK Government Bonds), lowering 10-year yields to 4.3%. However, due to strong second-quarter GDP data, US Treasuries and European government bonds faced slight losses.
Commodity prices bounced back from their earlier losses this year, with the Bloomberg Commodity Index rising 6.3% in July. Oil prices increased, and the cancellation of Russia’s Black Sea grain export deal increased agricultural commodity prices. Meanwhile, European natural gas prices declined due to high storage inventories.
*The graph above shows the changes in the main global markets over the month of July 2023.
USA Market update – July 2023 Overview
The major market event in July was the June Consumer Price Index (CPI) report, released mid-month. Headline inflation dropped more than anticipated to 3% year-on-year (previously 4%). While core inflation, which excludes volatile factors, remained more stable at 4.8% year-on-year.
This unexpected drop in inflation and a resilient early estimate of second-quarter GDP growth at 2.4% increased hopes for a market ‘soft landing’. The S&P 500 climbed 3.2% in July, pushing year-to-date returns above 20%.
UK Market update – July 2023 Overview
In the UK, wage growth continued, with average earnings (excluding bonuses) increasing by 7.3% compared to the previous year in June. However, the increase in overall prices (inflation) slowed down more than expected to 7.9%, a drop from 8.7% in May.
The FTSE All-Share, an index that reflects how well companies in the UK are performing, didn’t perform as well as similar indexes in other developed countries. This could be due to the UK’s economy not looking as strong – a measure of economic health, the manufacturing PMI, dropped to 45.0 in July.
Despite this, the UK index still saw a 2.6% increase over the month. The British pound (GBP) gained value compared to the US dollar (USD) because many expected the Bank of England to increase rates more than other major central banks.
Europe Market update – July 2023 Overview
In July, the European Central Bank (ECB) also increased rates. As planned, they raised the deposit rate by 0.25 to 3.75%. The president of the European Central Bank (ECB), Christine Lagarde, mentioned that they might take a break in September, but she made it clear that not changing rates doesn’t necessarily mean they won’t make more changes later.
The ECB’s shift towards being more cautious probably happened because the cost of living in the eurozone was going down, and the economy wasn’t doing as well before their meeting in July. A measure of how well the economy is doing – the composite Purchasing Managers’ Index (PMI), dropped to 48.9 in July, suggesting that the economy was slightly shrinking that month. The part of the PMI that looks at manufacturing dropped even more to 42.7, the lowest since the COVID-19 pandemic.
Even though the outlook for economic growth was a bit weaker, the MSCI Europe excluding the UK Index, which shows how well companies in Europe are doing, increased by 1.3% in July.
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Overall, global markets stayed positive in July as investors continued to be hopeful that inflation would fall to the desired level without needing more interest rate increases or a significant drop in economic activity. This optimism has been growing throughout the year.
Despite this, we would like to remind readers that when there are any big changes in global market data, it’s important not to make rash decisions and consider the long-term outlook instead.
Please contact Brite if you have any questions about this market update or want to learn more about Brite and how we can maximise your pension and investment assets. Our experienced advisory team is here to help you make more informed decisions.