Developed equity and bond markets rebounded in July supported by the expectation of a move toward monetary policy easing in the US next year and several large technology and energy companies reporting better than expected earnings. Market sentiment in recent weeks has shifted between the recognition that central banks need to raise interest rates aggressively to combat soaring inflation and the concern that excessive monetary tightening may cause a global economic slowdown.

Whilst recent economic data suggests a weak global growth backdrop, markets have increasingly priced in US interest rate cuts next year and this anticipation of a shift in monetary policy was supportive for risk assets in July, notably the S&P 500 Index which rallied given its strong growth tilt. Strong gains were achieved by economically sensitive sectors otherwise known as ‘cyclicals’ such as information technology, consumer discretionary, and industrials. While developed equity markets saw positive returns in July, Chinese equities struggled and commodities/natural resources gave up some of their previous gains achieved earlier this year.

Expectations of rising interest rates have been incorporated in bond markets for several months now however the recent change in expectations provided support to fixed income markets in July as yields declined resulting in positive gains for developed market government bonds, with higher yielding instruments being the best performing sector. Signs of inflationary pressures receding will be needed for this change in sentiment to be maintained.

The US economy contracted in July due to negative growth in the services sector including construction, investment and government spending. This was only partially offset by limited growth in the manufacturing sector including trade and consumption. While two quarters of negative growth means the US is technically in recession by some definitions, this is unlikely to be formally declared due to the strength of the labour market. Unemployment remains low however and with inflation at a record high of 9.10% year on year, real wage growth is negative. As expected, US interest rates were raised by 0.75% in July to 2.50% and the Federal Reserve Bank remains committed to bringing inflation under control.

In Europe, the reduction of gas supplies from Russia, ostensibly to enable repairs to a turbine sparked fears of supply scarcity and resulted in a spike in prices. The Eurozone is no longer in negative interest rate territory as the European Central Bank delivered its first interest rate hike in over a decade due to elevated inflation. Recessionary risk is largely focused on gas/energy disruption and the subsequent impact on production, however Eurozone growth recently surprised to the upside with the economy proving resilient to the geopolitical headwinds so far.

During July, Prime Minister Boris Johnson resigned after losing the support of his parliamentary party. The next Prime Minister will be announced on 5 September, with Rishi Sunak, the former Chancellor, and Liz Truss, the current Foreign Secretary, reaching the final voting stage. The UK economy and financial market seems likely to remain more sensitive to global forces than UK politics however. Inflation continued to increase during the month and the Bank of England raised interest rates by 0.50% to 1.75%, its highest level since 2008, and is now forecasting the UK economy to enter a recession.

Emerging market equities were the worst performing asset class in July. Positive performance from Indian and South Korean markets was offset by Chinese real estate weakness due to concerns around China’s property market where large property developers like Evergrande have accumulated significant debts. Despite recent export data exceeding expectations and contributing to an easing of supply chain pressures, China has been making small changes to its stringent COVID restrictions but shows no real sign of removing its zero-COVID policy. It continued to grapple with the Omicron outbreak and further lockdown measures were enacted in various cities in July, which casts uncertainty over China’s economic recovery with tension over China’s intentions towards Taiwan another concern.

Most global markets suffered significant declines in the first half of 2022 as elevated inflation rates were a consequence of stimulus measures during the pandemic, subsequent supply chain issues and then the conflict in Ukraine. This resulted in a change to monetary policy and an ongoing series of interest rate rises. In recent weeks however, markets have started to price in lower economic growth projections and increasingly a period of recession, meaning fewer interest rate hikes before a peak is reached and this has provided some relief to equities and bonds. Equity market valuations have improved based on current earnings attracting some investors back into the market but the continuation of this upturn is subject to a number of risks include earnings downgrades, a worse contraction of economic growth than anticipated, geopolitical events, further inflationary pressures and a more aggressive approach from central banks to get rising prices under control.


Market Performance


2022 Year to Date
FTSE All-Share -0.41%
FTSE World ex-UK -4.65%
FTSE Actuaries UK Conventional Gilts All Stocks -11.81%
FTSE Actuaries UK Index-Linked All Stocks -17.91%


Total returns in GBP to 29/07/2022



Key Rates
Bank of England Base Rate 1.75%
Inflation (Retail Price Index/Consumer Price Index)* 11.80%/9.40%


* June 2022

Source of data: FE Analytics,,

The content contained in this article represents the opinions of MacIntosh & James Partners Ltd. The commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.