In July, the Trump administration’s announcement of several trade deals and the passage of the One Big Beautiful Bill Act (OBBBA) provided greater policy clarity and boosted market sentiment. Whilst this certainty was positive for markets in the short-term, long-term estimates of the increase in the US deficit put the OBBBA’s cost at $3.4tn, further calling into question the United States’ debt sustainability. The US reached trade deals with Japan and the EU amongst other nations, setting most import tariffs, including on automobiles at 15%. While these rates remain well above the pre-Trump average of 2.4%, markets reacted positively, encouraged by reduced fears of a deepening trade war.
At the end of the month, the Federal Reserve voted to leave interest rates on hold, as expected, however there were two dissents, with Governors Waller and Bowman both President Trump appointees from his first term – voting to ease by 25 bps. This marked the first time since December 1993 that two sitting members of the Board of Governors have formally dissented from an FOMC policy decision. The market now expects two cuts of 25 bps over the final three meetings of the year.
All major equity markets delivered positive returns over the month, with MSCI World Index up 5.1% in sterling terms. The US stock market was the strongest performing developed market given the continued optimism surrounding the AI theme. Within global equities, our holding in the iShares Private Equity ETF outperformed broader markets, rallying 8.3% as the outlook for M&A and realisations continues to improve. Within Emerging Markets, our holding in Chinese technology companies outperformed broader markets over the month.
Fixed income markets were also positive in July, with our holdings in US and UK inflation linked bonds generating positive returns. We believe inflation linked bonds can benefit both from increases in inflation as a result of tariffs, as well as acting as a diversifier if global growth slows.
Within alternatives, a holding of Gold continued to add value, as debt dynamics continue to be unfavourable for many developed markets.
