Investment markets were up in July due to optimism regarding evidence of softening inflation. However, this didn’t stop some central banks from tightening monetary policy further. The US Federal Reserve raised interest rates in July to a range of 5.25-5.50% along with the European Central Bank raising rates to 3.75% the highest level since the year 2000. The Reserve Bank of Australia kept rates on hold in July.

US equities were one of the best performing markets and were buoyed by earnings that met the previously lowered analyst expectations and also helped by stronger than expected Gross Domestic Product (GDP) that recorded a 2.4% annual growth rate for the June quarter, up strongly from economists’ predictions. Globally the energy sector benefitted from strong economic data and production cuts from the group Organization of the Petroleum Exporting Countries Plus (OPEC+).

Australian Equities gained 2.8% led by the energy sector that was up 8.8% with the Healthcare sector being negative for the month along with Consumer Staples. Currency-hedged international equities were up 2.8% with both Asian and European equities contributing to global equity returns. Unhedged international equities gained 2.1% and the Australian dollar was slightly up (+0.8%) against the US dollar buying US$0.6717 at the end of the month.

The Australian 10-year government bond yield rose by 4bps to 4.06% and the 2-year government bond yield fell by 28bps to 3.94%. The US 10-year government bond yield rose by 12bps to close at 3.96% and the US 2-year government bond yield fell by 2bps to 4.88%.

KEY DEVELOPMENTS POST MONTH-END

The RBA met on 1st August and decided to leave the current cash rate at 4.10% noting that “the higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so. In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month”.

Benchmark Returns

Article source: Australian Unity

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