Global markets proved resilient during July despite renewed geopolitical tensions, shifting market leadership and continued uncertainty around inflation and interest rates.
The FTSE 100 reached a new all-time high, while central banks kept interest rates on hold as they continued to monitor the impact of higher energy prices and global conflict. Technology stocks came under pressure as investors questioned the sustainability of the recent AI-driven rally, prompting a rotation into more defensive areas of the market.
US: Federal Reserve keeps rates on hold as inflation eases
The U.S. Federal Reserve left interest rates unchanged at 3.50% to 3.75% for a fifth consecutive meeting, despite continued calls from President Trump for lower borrowing costs.
Inflation cooled more than expected, falling from 4.2% in May to 3.5% in June, helped by lower energy prices following a temporary easing of tensions with Iran. However, policymakers remain cautious that renewed conflict could quickly push inflation higher again.
The labour market continued to demonstrate resilience. Employers added 57,000 jobs during June, while unemployment edged down to 4.2%. Although hiring slowed, the three-month average of around 111,000 new jobs suggests employment remains relatively stable.
Consumer confidence also improved as lower fuel prices provided some relief for household budgets.
UK: New Prime Minister takes office as rates remain unchanged
July also brought political change in the UK, with Andy Burnham becoming Prime Minister following Keir Starmer’s resignation.
The Bank of England kept interest rates unchanged at 3.75% for a fifth consecutive meeting but indicated it could tighten monetary policy if renewed conflict in the Middle East causes inflation to accelerate.
UK inflation fell from 2.8% to 2.6% in June. However, economists expect higher energy prices to push inflation back above 3% later this year.
The labour market remained relatively resilient, with unemployment edging down to 4.9%, although job vacancies fell to their lowest level in five years, suggesting demand for new workers continues to soften.
Europe: Inflation eases but energy remains a key risk
The European Central Bank kept interest rates unchanged at 2.25% following its June rate increase.
While eurozone inflation eased from 3.2% to 2.8% in June, policymakers indicated another interest rate rise in September remains a possibility if inflation proves persistent.
A significant concern for Europe remains energy security. Gas storage levels are currently at their lowest level in at least 15 years, leaving the region vulnerable to higher energy prices as winter approaches.
Although inflation has eased, the outlook remains closely tied to developments in global energy markets.
China: Growth continues to slow
China’s economy expanded by 4.3% during the second quarter, slowing significantly from 5% growth in the first quarter and falling below the government’s annual target.
Consumer price inflation eased during June, while wholesale inflation accelerated.
Exports remained a bright spot, rising 27% year on year, supported by continued global demand linked to artificial intelligence. However, weaker domestic demand and a slowing property market continue to weigh on broader economic growth.
Markets: Rotation continues as energy prices remain volatile
Markets continued to rotate away from some of the largest technology companies as investors reassessed AI valuations following the July Federal Reserve meeting.
Meanwhile, energy stocks outperformed after renewed disruption to shipping through the Strait of Hormuz pushed oil prices higher. Brent crude briefly reached $100 per barrel before easing back, highlighting how sensitive markets remain to geopolitical developments.
Despite these challenges, global equity markets have shown resilience as investors continue balancing inflation risks, interest rate expectations and geopolitical uncertainty.