Trade remained the dominant geopolitical issue in July, with key issues between rivals China and the US still unresolved. From the US’s perspective, the month was a positive one with Europe, as president of the European Commission, Jean-Claude Juncker, agreed to permit increased imports of US goods in exchange for tariff relief.

The China-US bilateral relationship started the month poorly with escalating retaliatory threats on both sides, followed by a brief respite mid-month before President Trump resumed his criticism, took aim at Chinese currency weakness and threatened tariffs on a broader range of Chinese imports. Chinese authorities meanwhile sought to help buffer their economy against any trade-related shocks through monetary and fiscal easing measures.

“Brexit” (the United Kingdom’s departure from the European Union) negotiations were thrown into disarray after both David Davis (Brexit Secretary) & Boris Johnson (Foreign Secretary) resigned over Prime Minister Theresa May’s negotiated compromises with the European Union. Following these resignations Brexit strategy will now be orchestrated from the Prime Minister’s office directly.

President Trump was forced to backpedal late in the month after bipartisan backlash to a poorly managed summit with Russian President Vladimir Putin. The President was in the firing line following the meeting, considered too soft on Russia on key issues, too dismissive of long-standing allies, and too deferential to his Russian counterpart. President Trump subsequently released a number of embarrassing back-flips on statements he made at the meeting.

Equities

Equity market performance was strong over the month, with the US and Europe posting the highest returns in local currency terms. The US market was strong throughout the month despite the ongoing trade conflict, but fell back slightly in the last few days as technology stocks were challenged by disappointing earnings and fears of higher interest rates.

Emerging markets, which are more exposed to both global trade weakness and a rising US Dollar, continued to underperform developed markets.

Within developed markets all sectors posted positive performance in local currency terms, with Health Care and Industrials experiencing the strongest returns, whilst Consumer Discretionary and Energy were the weakest.

In Australia the best performing sector was Telecommunications followed by Industrials, whilst Utilities and Information Technology underperformed.

Bonds

Global bond yields rose over the course of the month as economic growth continued apace. Rising expectations of interest rate hikes, particularly in the US, caused shorter-dated bond yields to rise faster than longer-dated yields.

Federal Reserve Chair Jerome Powell reinforced these expectations of higher interest rates throughout the month by commenting on the strength of the economy and labour market, although also conceding that trade tensions could represent a material headwind to growth if they escalate further.

European 10-year yields rose in the most of major developed markets over the month, partly in response to European Central Bank officials’ concerns that investors were not adequately pricing in the likelihood of interest rate rises in the coming 18-months.

Currencies

The Australian Dollar rose against most global peers over the month, most notably against the Japanese Yen and British Pound, with the UK’s currency challenged by Brexit turmoil. The Australian Dollar also strengthened significantly against the Chinese Renminbi which fell back against global currencies as a result of the ongoing trade tensions.

Gains were more modest against the US Dollar with the Aussie finishing the month at 0.7424, up just 0.19 US cents over the month, as interest rate expectations in the US continued to rise.

Commodities

Oil continued its recent run of volatility, ending the month down over 7%, as the outlook for both demand and supply remain fluid. As trade conflict continued throughout the month investors became concerned about the impact on oil demand that may be posed by further escalation, whilst on the supply side uncertainty continued around OPEC (Organisation of the Petroleum Exporting Countries) and other producing countries’ response to recent production losses.

Industrial metals prices were challenged over the month, with iron ore the best performer whilst copper and aluminium experienced the largest price declines. Precious metal performance was also poor, with silver and gold both down in July.

Performance of key markets 

Asset class	Index	Month (% change)	FYTD (% change)	1 year (% change)
Australian Shares	S&P/ASX 200 Acc. Index	1.4	1.4	14.6
International Shares	MSCI World Ex Aust Unhedged A$ Net Return	2.5	2.5	20.3
International Shares	MSCI World Ex Aust Hedged A$ Net Return	3.2	3.2	13.4
US Shares	S&P 500 Index	3.7	3.7	16.2
UK Shares	FTSE 100 Index	1.5	1.5	9.4
Japan Shares	Nikkei 225 Index	1.1	1.1	15.4
Australian Property	S&P/ASX 200 A-REIT Index	1.0	1.0	14.2
Australian Fixed Interest	Bloomberg AusBond Composite Index	0.2	0.2	3.0
Australian Cash	Bloomberg AusBond Bank Bill Index	0.2	0.2	1.8
Currency	AUD/USD	0.3	0.3	-7.2

Returns are for periods to 31 July 2018. Past performance is not an indication of future performance.

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