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Monthly Review - July 2023

11 months ago

QUICK LOOK
The Markets

July

3.1%

S&P 500

1.6%

EURO STOXX 50

2.2%

FTSE 100

1.3%

CAC 40

1.9%

DAX 30

6.6%

BEL 20

5.0%

FTSE MIB

0.5%

IBEX 35

1.5%

TOPIX
   
 Source: Bloomberg 31.07.2023
Peak Fed reached?

Peak Fed reached?

After its June ‘skip’, the US Federal Reserve (Fed) resumed the path of rising interest rates, delivering the eleventh hike in twelve meetings and hitting a 22 year high. With inflation recently dipping towards the Fed’s 2% target, could the peak in this rate cycle finally have been reached? As ever, the Fed promised only to remain data dependent. Meanwhile the European Central Bank climbed closer to its own peak even as, after years of ultra-loose policy, the Bank of Japan stepped into a slightly more hawkish phase. The People’s Bank of China left benchmark rates unchanged.

Heat domes hover

Heat domes hover

In a change to normal weather patterns, the jet stream of atmospheric winds high above the Atlantic formed huge self-reinforcing heat domes. This brought soaring temperatures to the Northern Hemisphere, extending from the US and Canada to Southern Europe, North Africa and beyond. In China, the province of Xinjiang suffered the world’s highest ever recorded temperature of 52.2C. The impact on agriculture could be severe. Growers of crops from olives to fruit and vegetables predict that yields will fall sharply this year, impacting supply. Just as food price inflation appeared to be tipping downwards.

Perhaps a softer landing?

Perhaps a softer landing?

Forecasters remained divided as to the path of economic growth over the next few quarters, leaving markets uncertain.  Optimists predicted that efforts by the Fed to cool the US economy might deliver a slowdown while avoiding recession. It’s never been achieved before and has been dubbed an ‘immaculate disinflation’. Meanwhile, the second quarter reporting season started strongly, with the banking sector demonstrating the positive impact of rising interest rates on profit margins. Tesla and Netflix spoiled the mood a little by falling short on revenue expectations, however, which saw both stocks punished by the market.

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