Global equity markets experienced a strong month of returns in July. The value of the Australian Dollar increased against a basket of major foreign currencies, decreasing overseas investment returns when measured in Australian dollar terms. International and Australian fixed interest markets posted modest positive returns despite some upward pressure on bond yields over the month.

The Board of the Reserve Bank of Australia (RBA) met on 4 July to discuss global and domestic economies and markets, and to review their monetary policy settings. The RBA decided to hold the cash rate target at 4.10%, its second pause for the year. During July Australia’s Treasurer, Jim Chalmers, announced that Deputy Governor Michele Bullock would take over the senior post from current Governor Phillip Lowe starting from 18 September 2023 when Lowe’s term is scheduled to end. On 1 August, whilst not in the timeframe captured by this commentary, the RBA maintained the cash rate at 4.10%.

The Federal Reserve (the Central Bank of the United States) increased interest rates in July, by 25 basis points to 5.5%. Commentary from the Chair of the Federal Reserve, Jerome Powell, suggested that further hikes would be data dependent and that whilst recent falls in headline inflation were welcome, core prices remain “pretty elevated”. In his remarks, Powell stated that “it’s certainly possible” that they would choose to hike in September, but that it was also “possible that we would choose to hold”, further reinforcing the data dependent nature of monetary policy decisions in the current economic climate.

Russia suspended the Black Sea Grain Initiative, which allowed Ukraine to ship grain to countries in Africa, the Middle East and Asia despite the ongoing conflict, causing substantial volatility in wheat trading markets over the month. Russia claims that ending the agreement was related to its demands for its own food and fertilizer exports, despite coming amidst an ongoing Ukrainian counteroffensive in Russian-occupied territory and shortly after an alleged drone strike on the important land bridge to the Crimean Peninsula. 

Equities

Major developed foreign equity markets posted another strong month in July. Developed markets (excluding Australia) returned 2.8% on a currency-hedged basis (and 2.1% unhedged in Australian dollar terms, reflecting the rise in the value of the Australian dollar). The only exception was Japan, which was roughly flat after two very strong months in May and June. The best performing of the major foreign markets was the US stock market (S&P 500 Index) returning 3.2% (in local currency terms) in July. 

The Australian stock market (S&P/ASX 200 Index) was positive during July returning 2.9%, with 9 out of 11 industry sectors experiencing positive returns. Energy was the standout performer, returning 8.8% for the month, whilst the underperforming sectors were Healthcare and Consumer Staples with returns of -1.5% and -1.1% respectively.

From a foreign developed market perspective, all 11 sectors produced positive returns for the second consecutive month. Energy, Communication Services and Financials were the best performing sectors producing returns of 6.1%, 6.0% and 4.8% respectively. The worst performing sector was Health Care, which still generated a healthy return of 0.8% over the month.

Bonds

The Australian government bond yield curve steepened in July, with 2-year yields falling (-0.28%) and 10-year yields rising slightly (+0.04%) to finish the month at 3.94% and 4.06% respectively. Australian fixed interest returns for July were +0.5% (Bloomberg AusBond Composite Index).

Over July, major developed global government bond yields were mixed but in aggregate rose at the longer maturities. The Bloomberg Global Aggregate Index (Hedged) was roughly flat. Over the ten-year term, the Japanese Government yields rose the most of major developed governments by 0.21% as the Bank of Japan adjusted its long-running Yield Curve Control policies.

Currencies

The Australian Dollar fell against most major foreign currencies in July. The Australian Dollar decreased by 1.9% against the Swiss Franc, 0.6% against the Japanese Yen and was roughly flat against the Euro.

The Australian Dollar rose against the United States Dollar (+0.8%), however, which given the United States’ weight in global financial markets meant that the Australian Dollar was up against the weighted basket for the month. The Australian Dollar finished the month at 0.6717 US Dollars, up 0.5 US cents over the month.

Commodities

Commodity prices continued to be volatile over July and the S&P GSCI Commodities Index ended the month up 9.8%. The price of WTI oil and Brent oil rose 15.8% and 14.2% respectively. Of the precious metals, the price of gold increased 2.4% and the price of silver increased by 8.7% in July. 

Performance of key markets over relevant time periods to 31 July 2023:

Asset class	Index	Month* (% change)	FYTD* (% change)	1 year* (% change)
Australian Shares	S&P/ASX 200 Acc. Index	2.9%	7.5%	2.9%
International Shares	MSCI World Ex Aust Unhedged A$	2.1%	20.0%	2.1%
International Shares	MSCI World Ex Aust Hedged A$	2.8%	18.0%	2.8%
US Shares	S&P 500 Index	3.2%	20.6%	3.2%
UK Shares	FTSE 100 Index	2.3%	5.7%	2.3%
Japanese Shares	Nikkei 225 Index	0.0%	28.6%	0.0%
Australian Listed Property	S&P/ASX 200 A-REIT Index	3.8%	7.9%	3.8%
Australian Fixed Interest	Bloomberg AusBond Composite Index	0.5%	2.0%	0.5%
Australian Cash	Bloomberg AusBond Bank Bill Index	0.4%	2.1%	0.4%
Currency	AUD/USD	0.8%	-1.4%	0.8%

*Percentage changes in returns are for periods over the month of July (Month), calendar year to date 31 December 2022 to 31 July 2023 (CYTD) and the financial year to date 30 June 2022 to 31 July 2023 (FYTD). Past performance is not an indication of future performance.

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