Monthly Comment - July 2024

In July 2024, global financial markets experienced notable trends across equities,
bonds, currencies, interest rates, and commodities, driven by economic data,
central bank policies, and geopolitical developments.
Equities
Global equities showed modest gains, with a 1.6% increase in USD terms. The
US market saw a 1.2% rise, while Japan led with a 5.8% increase. The UK and
Switzerland also posted strong performances, with increases of 4.2% and 4.8%,
respectively. However, the month was marked by significant rotation within the
equity markets. Initially, stocks reached new highs, but a mid-month shift saw a
move away from mega-cap technology stocks, like the 'Magnificent Seven',
towards small caps. This shift was partly due to expectations of a Federal Reserve
rate cut in September. Despite this rotation, growth stocks, particularly those linked

to artificial intelligence, continued to perform well, contributing to a 16% year-to-
date gain in developed market equities. However, some skepticism emerged

regarding future returns from AI investments. The earnings season in the US

started strong, with a blended earnings growth rate tracking close to 10% year-
over-year, after two-fifths of S&P500 companies reported.

Bonds
In the fixed income market, government bond yields generally drifted lower. US
Treasuries gained 2.2%, with the yield curve steepening as the spread between
the 10-year and 2-year yields narrowed to -21 basis points. In the UK, stronger
GDP growth and persistent services inflation suggested more gradual rate cuts
compared to the US and Europe, leading to a 1.9% return for UK Gilts. European
government bonds, particularly in Italy and Spain, outperformed core bonds,
anticipating further European Central Bank (ECB) rate cuts. Investment-grade
bonds outperformed high-yield bonds, with the Bloomberg Global Aggregate
Corporate Index returning 2.4%. The credit market saw a preference for
investment-grade financials, while high-yield bonds remained under scrutiny due to
economic uncertainties.

Currencies
Currency markets saw some major movements, with the Japanese yen
appreciating by almost 7% against the US dollar. The US dollar weakened by
0.6%, while the euro and pound sterling strengthened by 0.4% and 0.6%,

respectively. The Swiss franc saw a notable 1.2% increase, reflecting its safe-
haven status amid global uncertainties.

Interest Rates
Central bank policies remained a focal point, with expectations of rate cuts in the
US due to softer inflation and labor market data. The Federal Reserve is
anticipated to begin cutting rates in September, with nearly three cuts expected by
year-end. In contrast, the ECB and Bank of England (BoE) faced challenges with
sticky services inflation, leading to cautious approaches in rate adjustments. The
Bank of Japan continued its monetary policy normalization, raising its policy rate to
0.25% and reducing Japanese Government Bond purchases. This move reflects a
broader trend of central banks navigating between inflation control and economic
support.
Commodities
Commodities faced a broad-based decline, with the Bloomberg Commodity Index
dropping by 4.0%. Oil prices fell as markets weighed weaker demand from China
against supply concerns from Middle East tensions. Despite this decline, precious
metals like gold bucked the trend, reaching new highs in US dollar terms.
Implications and Analysis
The global financial markets in July 2024 were characterized by a complex
interplay of economic indicators, central bank policies, and geopolitical factors.
Equity market valuations remained robust, supported by strong earnings growth,
particularly in the US tech sector. However, the rotation away from mega-cap
stocks towards smaller, interest-rate-sensitive assets highlighted investor
sensitivity to monetary policy shifts.

Central bank rate policies were pivotal, with the Fed's anticipated rate cuts
influencing both bond and equity markets. The divergence in central bank actions,
particularly between the US and Europe, underscored the challenges of managing
inflation while supporting economic growth. Inflation trends showed signs of
moderation, particularly in the US, where core services inflation eased.
This development is crucial for central bank decisions and could lead to a more
synchronized global monetary policy environment in the coming months.
In summary, July 2024 was a volatile yet insightful month for global financial
markets. The trends observed highlight the importance of central bank policies,
inflation dynamics, and geopolitical factors in shaping market movements and
investor strategies. As markets continue to navigate these challenges,
opportunities and risks will likely emerge,

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