Macro Insights

July 2023 Wrap-up: Improving Market Sentiment Lifts Equities and Commodities

1 August 2023

Market sentiment continued to improve in July as US inflation continued to decelerate. The UK, which had been an outlier among developed nations, saw a larger-than-expected fall in headline inflation from 8.7% (YoY) in May to 7.9% (YoY) in June. At their latest meetings, both the European Central Bank (ECB) and Federal Open Market Committee (FOMC) raised benchmark interest rates by +25bps and stressed that any further policy moves would be calibrated based on incoming data. In contrast, Japan saw a continued acceleration in underlying inflation above the 2% target, causing the Bank of Japan (BoJ) to loosen its Yield Curve Control (YCC) policy and allow long-term bond yields to rise. On the economic activity side, US growth continued to outperform, with Q2 GDP growing 2.4% (QoQ, Ann.) versus 1.2% (QoQ, Ann.) for the Euro Area. Meanwhile, in China, the central government discussed forthcoming stimulus measures as a global manufacturing downturn and weak domestic demand weighed on economic activity.

Against this backdrop, global equities were up +3.5% (MSCI AC World USD)¹ in June, with both developed and emerging markets participating in the rally. Commodities rose +6.1% (Bloomberg Commodity Index)², marking their strongest month of the year, led by broad improvements in market perceptions of global growth, as well as signs of deteriorating energy supply. This led to a rise in market-based inflation break-evens, which, when combined with a strong US growth environment, kept bond yields high and global bonds returns more muted at +0.8% (LEGATRUU Index)³. Despite US growth outperformance, declining fears around inflation and improving risk sentiment led the dollar down -1% (USD Trade-Weighted Index)4 over the month.

Source: Bloomberg

About the Author

1. Bloomberg Ticker: M2WD Index

2. Bloomberg Ticker: BCOMTR Index

3. Bloomberg Ticker: LEGATRUU Index

4. Bloomberg Ticker: TWI USSP Index

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