The month of July began quietly in the financial markets, politics prevailed. The results of the second round of the French elections showed that no party won an absolute majority. The effect on French government bond prices was limited. Furthermore, in the UK we saw Labour win the election and in the US, incumbent President Joe Biden withdrew as a presidential candidate for the upcoming elections.
The second half of July, however, was somewhat less calm. Disappointing corporate figures put pressure on share prices. Macroeconomic figures in the US and Europe were also below expectations. This increased the likelihood of interest rate cuts by central banks, with rising bond prices as a result. However, the central bank of Japan unexpectedly raised its policy rate (from 0.1% to 0.25%). The Japanese Yen appreciated sharply after months of declines.
Shares
Equity indices almost completely gave back the gains of the first half of the month in the second half. On balance, small pluses remained for most markets. The broad MSCI All Countries World Index (developed + emerging markets combined; measured in euros) posted a return of +0.6% in July. Emerging markets yielded slightly lower by month-end compared to June (-0.7%), while developed markets ended the month slightly positive (+0.8%). Within developed markets, Japan was the big winner (+4.8%). At some distance followed Europe (+1.2%) and Pacific excluding Japan (+0.7%). North America was the laggard this month with a slightly positive return of 0.4%. Emerging markets showed a divided picture. Regions with positive returns were EMEA (+2.7%) and Latin America (+0.1%), China (-2.3%) and Asia (-1.2%) closed July negatively. Increased uncertainty caused style value stocks (+3.4%) to do much better than style growth stocks (-1.8%).
Bonds
The aforementioned development of corporate and macroeconomic data caused interest rates to fall across a broad front. In the US, the decline was even more pronounced than in Europe. The 10-year US rate fell 0.37% to 4.03%. The declines in Dutch government bonds (-0.24% to 2.59%) and German government bonds (-0.20% to 2.30%) were close (both 10-year rates). Bonds with a higher risk profile showed a mixed picture. Less risky corporate bonds showed a 0.09% decrease in the risk premium (to 1.07%). However, an increase in the premium was noticeable in more risky corporate bonds, amounting to 0.05% to a level of 3.43%. We also saw an increase in emerging market government bonds (+0.08% to 4.00%).