Investment Commentary - July 2025

Tariffs were once again the primary driver of equity returns in July, with multiple relief rallies occurring as various trade deals with the US were announced during the month, including the EU and Japan. President Trump also announced a pause on many of the higher unilateral tariffs and further extensions for trading partners to negotiate deals. Supporting this positive backdrop was further solid economic data and a better-than-expected second quarter earnings season, with stellar earnings growth of 26% for the ‘Magnificent Seven’. According to Deutsche Bank, this enabled the Nasdaq to record a remarkable fourteen all-time highs over the twenty-two trading days of the month.

With no further interest rate cuts from the major central banks during July, market attention was on fiscal policy during the period. President Trump’s ‘Big Beautiful Bill’ was signed into law after passing through Congress. The German Government approved a 2026 budget, which included record investment spending plans and added borrowing, earmarked for modernisation of its infrastructure and increased defence spending. Elsewhere, there were a number of U-turns from the UK Government over plans to curb welfare spending.

As tariff risks receded further, risk assets enjoyed a solid month, with global developed market equities returning +1.3%. Despite the headwind of a slightly stronger dollar, this return was bettered by emerging markets, which gained +2% on the month. Within developed markets, it was finally the turn for UK equities to come out on top, with a return of +4% for the FTSE All-Share. The US and Japan also saw positive returns, with the S&P 500 and the Nikkei returning +2.2% and +1.4% respectively. Asia ex-Japan was up +2.6%. Europe ex-UK was generally the worst performer, with a negative return of -0.2%.

Bonds struggled somewhat during the month, with most in negative territory. Further fiscal spending plans raised fresh concerns about the sustainability of debt-loads for some of the major economies, putting upward pressure on bond yields consequently. Gilts, US Treasuries and Eurozone sovereign bonds all produced similar returns during the period, falling -0.4%, -0.4% and -0.2% respectively. Elsewhere, Japanese ten-year bonds reached their highest level in over twenty years after elections saw the ruling coalition lose its majority.

For commodities, the broad CRB Index was down modestly, falling -1.1%. There was, however, significant volatility for individual commodities. Copper was a good example of this, with major market dislocations on the back of a rapidly changing tariff picture. After a roller-coaster month, where broad tariffs were announced and then significantly exempted, the metal ended down -13.4%. Oil prices rallied during the later part of the month, continuing their recovery from the lows seen in early May. WTI and Brent Crude rose +6.4% and +7.3% respectively, boosted by tougher rhetoric from President Trump on Russia and those that continue to buy large quantities of Russian crude. Gold continued its quiet few months with a small negative return of -0.4%.

The US Dollar managed to arrest its 2025 slide, with a modest bounce back during the period. After negative returns for the Dollar Index in every other month of the year, it posted a gain of +3.2% in July (its best month in over three years). These gains were broad-based, with the Dollar appreciating against all the other G10 currencies. Of these, The Japanese Yen was one of the weakest, falling by -4.5% against the Dollar. Sterling was also relatively weak.

All figures quoted are local currency returns (and USD returns for commodities).