Investment update for July 2022

In the month of July, there was further evidence of a slowdown in the global economy as inflation continued to rise while real wage growth stayed negative.

July witnessed US equity markets rebound after the dismal end to the last financial year. The S&P 500 ended the month up 9.2% despite the increased risk of recession in the US. The US also experienced two consecutive quarters of negative GDP growth which is the technical definition of an economic ‘recession’. However, economists believe it is perhaps still too early for the US National Bureau of Economic Research (the agency that typically classifies US recessions) to label the current period as a recession given the unusual environment where the labour market is still very strong.

Gas supply remains an issue in Europe as Russia continues to scale back gas flow through the Nord Stream 1 pipeline. The European equity markets similarly produced positive returns over the month. The UK equity market also performed well despite the uncertainty in the leadership of the Conservative Party. At the start of July, former Prime Minister Boris Johnson resigned after he lost the support of the parliamentary party.

The Australian share market had a solid rebound from the June fall driven primarily by Financial and Technology stocks. The annual headline inflation rate for Australia as at the end of the June quarter was 6.1% which was the highest rate of headline inflation in Australia since the GST was introduced in 2000. The RBA also raised the cash rate by another 0.5% to 1.85% at its August meeting.

Emerging market stocks were not as positive, led by Chinese equities which were down 4.3%. Economic activity has slowed significantly over the last few months in China due to a rise in COVID-19 cases and lockdown measures.

Globally, bond markets have rallied as markets adjust expectations for how quickly central banks will lift rates. Positive returns for bonds in July follow 12 months of largely negative returns as central banks have moved to begin raising rates.

The Australian dollar finished the month slightly higher against the US dollar after some volatility driven by concerns around a possible global recession, weaker-than-expected US economic data and the ongoing war in Ukraine.

Australian listed real assets generally outperformed international listed real assets over the month, with Australian property in particular exhibiting strong performance.

Read our monthly market snapshot here.