July was a quiet month for market news, with the biggest stories being election results in the UK and France and Joe Biden’s withdrawal from the US Presidential race.
US markets hit all-time highs during the month before pulling back as mega cap tech stocks fell over concerns about the deliverability of their AI investments and further restrictions on chip exports to China.
Jobs growth in the US slowed in June, although the economy still added a higher-than-expected 206,000 jobs.
The Fed acknowledged in the minutes of its most recent meeting that the economy appeared to be slowing and that price pressures were easing. Markets are now pricing in a 72% chance of a rate cut at the Fed’s next meeting in September.
US GDP grew at a better-than-expected 2.8% in Q2, up from 1.4% in Q1. US CPI was 3% in June, below the expected 3.1% and the smallest increase since June last year. Core PCE, the Fed’s preferred measure of inflation, was 2.5% annualised in June, down from 2.6% in May.
US stocks hit new record highs during July before retreating over the final two weeks of the month. The retreat was led predominantly by technology stocks, which fell on concern over restrictions on exports of AI-related technology and components to China. There was a rotation towards value stocks and smaller companies, as investors worried if the big tech names could deliver on their heavy investment in AI.
President Joe Biden dropped out of running for re-election in November, with his Vice-President Kamala Harris being selected as his replacement and new opponent for Donald Trump. Harris is yet to be officially confirmed as the Democratic nominee but is all but certain to be facing off against Trump in this year’s election. Markets were broadly unmoved by the decision, with speculation that Biden would drop out, which intensified in the weeks leading up to the announcement.
US stock markets have historically grown in the three quarters preceding a presidential election. Harris has closed the gap to Trump in the polls, yet it remains a neck-and-neck race that, at this stage, is too close to call.
In the UK, the Labour Party swept to a crushing majority of 174 seats to oust the Conservative Party from its 14 years in government (the first 5 of which were in coalition with the Liberal Democrats), meaning that Sir Keir Starmer replaces Rishi Sunak as the country’s new Prime Minister. Markets reacted favourably to the outcome as it signalled political stability in the UK for the next five years, with the FTSE 250 surging 1.8% to its highest level since April 2022.
Rachel Reeves was appointed as the first female Chancellor of the Exchequer, pledging to lead the most “pro-growth, pro-business Treasury [the] country has ever seen”.
The new government’s perceived stability also strengthened the British pound to its highest level since the 2016 Brexit vote.
In France, 200 candidates from centrist and left-wing parties withdrew from the second round of parliamentary elections to form a coalition against the far-right National Rally party and give a non-far-right candidate the best chance possible of winning each seat.
The tactics worked as they prevented National Rally from gaining an outright majority, with coalition parties making up the largest group. However, France has been left with a hung parliament, and President Macron has said he will not nominate a new Prime Minister until after the Olympic Games, citing the need to reduce instability as the nation and city of Paris focus on hosting the Games, although his rivals have disputed this as a delaying tactic.
French markets reacted negatively to the political volatility and uncertainty, although the sentiment was contained in France and did not spread across broader European markets.
China saw its slowest quarterly growth since 2023, with GDP expanding by 4.7% year-on-year in Q2, down from 5.3% in Q1. A declining property market and job insecurity have led to weakening domestic demand.
Markets were surprised by the People’s Bank of China’s decision to cut several of its short- and long-term benchmark rates by 0.1% and its medium-term rate by 0.2%, saying that it wanted to “step up” its financial support for the economy.
The EU has also introduced new tariffs of between 17.4% and 37.6% on individual manufacturers of Chinese electric vehicles, on top of an existing 10% duty, to combat “unfair” subsidies from the Chinese government that allow the vehicles to be manufactured more cheaply and, therefore, sold for much lower prices within the EU.
The ECB left rates unchanged, as expected, following the previous month’s 0.25% cut.
The Bank of Canada made its second consecutive 0.25% cut to its main interest rates, after being the first G7 central bank to cut rates the previous month. This took its benchmark rate down to 4.5%.
Samsung reported profits of $7.5 billion in Q2, a 15x increase in the same period as last year. Samsung is the world’s biggest producer of memory chips, and the boom in AI has massively driven up demand for advanced memory chips.
Gold prices rose to an all-time high on expectations of a fall in interest rates and on prospects of a second Trump presidency in the US, which would likely see an increase in global trade tariffs and geopolitical tensions.
The Japanese yen climbed to a six-week high after reports that the BoJ had intervened to support it by buying JPY 6 trillion worth ($38 billion) of the currency.
