In this July market update, our Chief Investment Officer, Sean Henaghan, explores the trends driving global and local markets.
July brought some welcome clarity to global markets. New US trade agreements with Japan and the European Union, along with the passing of the One Big Beautiful Bill, helped ease uncertainty and supported investor sentiment. While tariff levels remain materially higher than pre-Trump averages, markets welcomed the predictability these agreements bring.
Economic Overview
The US economy rebounded strongly in Q2, growing at an annualised rate of 3% after contracting in Q1. Inflation edged up to 2.7% year-on-year in June, and the labour market remained resilient. In Europe, growth slowed to 0.1% for the second quarter, but relief over the US-EU trade deal helped stabilise sentiment. China’s economy showed continued momentum, with GDP growth of 5.3% in the first half of the year and industrial production beating expectations. Here in New Zealand, the recent US tariff increase to 15% presents challenges for key export sectors, which could put pressure on margins and future investment plans.
Central Banks
The US Federal Reserve, European Central Bank, Bank of Japan, and Reserve Bank of New Zealand, all left rates unchanged. Notably, the Fed adopted a more hawkish tone, while the Bank of Japan raised its inflation forecast, sparking speculation about future rate increases.
Equity Markets
Global developed market equities gained 4.1% in NZD terms in July, reaching new all-time highs. Markets were supported by improved policy clarity, strong corporate earnings, and continued enthusiasm for AI-related investments. The US stock market rose 5.0% in NZD terms, with many companies, including some of the “Magnificent Seven”, reporting results above expectations. European equities saw mixed performance as positive tariff news was offset by weakness in technology and consumer sectors. Japanese equities rallied late in the month after a favourable US-Japan trade deal, while Chinese shares benefited from supportive government policy. New Zealand’s NZX 50 was also up nearly 2%.
Fixed Income Markets
Government bond markets came under pressure as yields rose globally, reflecting both fiscal concerns and stronger regional growth prospects. The global aggregate bond index fell 1.5% in USD terms (+1.2% in NZD terms), though corporate bonds outperformed as credit spreads narrowed. Japanese government bonds were among the weakest performers, with 10-year yields hitting their highest level since 2008. New Zealand’s 10-year yield was largely unchanged.
Currency Markets
The US dollar strengthened against all G10 currencies in July, supported by robust economic data and positive trade developments. The New Zealand dollar fell 2.7% against the US dollar.
Outlook
While trade tensions have eased, markets remain sensitive to global growth trends, central bank policy and fiscal developments. Equity valuations are elevated, leaving little margin for disappointment. In this environment, we remain defensive and continue to focus on diversification, disciplined portfolio construction, and a long-term investment perspective to help navigate both opportunities and risks.
DISCLAIMER
This information is provided in a general nature only and should not be construed as or relied on as financial advice. This is not a recommendation to invest in a particular financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any investment decisions.
Past performance is not a reliable indicator of future performance. The value of your investment may go up and down.
