July Issue 2026

Equity Snapshot

United States

US equities were little changed in July. Stocks were pressured after last month’s US-Iran peace deal collapsed and amid renewed missile and drone strikes in the Gulf. In response to US strikes, Tehran launched retaliatory attacks on US installations in neighbouring states and closed the Strait of Hormuz to maritime traffic. Tensions escalated further after the Iran-backed Houthis in Yemen declared a naval blockade of Saudi Arabian ports, including the closure of the Bab el-Mandeb strait, disrupting Saudi oil supplies through the Red Sea. Meanwhile, regional power dynamics in the Gulf were in focus after President Donald Trump agreed a civilian nuclear cooperation deal with Saudi Arabia that lacks the standard historical provisions limiting uranium enrichment and broader nuclear non-proliferation safeguards. However, President Trump later backtracked and made the deal conditional on Riyadh normalising ties with Tel Aviv. Elsewhere, trade tensions were reignited after the office of the US Trade Representative launched a fresh tariff campaign stemming from a probe into forced labour under Section 301 of the US Trade Act of 1974, with the opening salvo fired against Brazil.

US fundamentals remained broadly solid. Economic growth rose by a sluggish 1.5% year on year in the second quarter compared with 2.1% in the first quarter. After hitting a new record of USD 327 billion in April, US exports fell by 3.2% on a sequential monthly basis in May, although international shipments of US crude oil continued to soar. US job creation figures came in softer than expected, with non-farm payrolls data showing that the US economy added just 57,000 jobs in June – significantly lower than consensus estimates of 110,000 and a slowdown from May’s downwardly revised 129,000 jobs. The April payrolls figure was revised lower, bringing the combined downward revision for April and May to 74,000 fewer jobs than originally estimated. More positively, the unemployment rate crept down to 4.2% in June after remaining at 4.3% for the preceding three months. US retail sales eased from an upwardly revised 7.3% year on year in May to 6.7% in June. Meanwhile, the University of Michigan Consumer Sentiment Index rose to 55.2% in July from June’s 48.9, trouncing expectations of 51.0.

Annual headline inflation fell from a three-year high of 4.2% in May to 3.5% in June – the biggest decrease since April 2020 – as energy prices stabilised on the back of last month’s US-Iran truce. Core inflation, which excludes volatile food and energy prices, eased from 2.9% year on year in May to 2.6% in June. Producer prices also came in softer than expected, slowing from a downwardly revised 6.0% to 5.5, while the core personal consumption expenditures prices index (PCE) – the Federal Reserve’s (Fed) preferred inflation gauge, which strips out volatile food and energy costs – eased from 3.4% to 3.3% over the same period. As widely anticipated, the Fed held borrowing rates steady at 3.50%–3.75% at its July meeting, although markets are pricing in a high probability of a rate hike at the next monetary policy meeting in September.

Europe

European equities were pressured in July. Markets tracked Wall Street lower as the US-Iran peace deal collapsed, with stocks falling as oil prices rose and inflationary risks resurfaced. Meanwhile, with Moscow intensifying strikes on Kyiv and repeated Russian drone incursions into European airspace sparking heightened security concerns, NATO leaders – including the US – convened at the alliance’s annual summit in Ankara, where they reaffirmed their “ironclad commitment” to collective defence. However, markets were roiled after US President Donald Trump reiterated his push to control Greenland. Risk appetite weakened further on renewed trans-Atlantic trade tensions after Washington imposed fresh tariffs on 60 trading partners, including the European Union (EU), citing alleged shortcomings in the enforcement of forced labour regulations. However, Brussels strongly disputed the claims, with EU Foreign Policy Chief Kaja Kallas describing Washington’s latest move a “negative surprise”. At month end, tensions within the bloc mounted as the death toll from the migrant rush to the Spanish enclave of Ceuta in North Africa continued to climb.

Asia

Asia ex Japan equities ended July lower amid heightened volatility and significant market rotation. Sentiment deteriorated following a sharp correction in global technology and semiconductor stocks, prompting investors to rotate away from crowded AI-related positions into previously lagging sectors and markets. Investor uncertainty was compounded by ongoing debate around the outlook for US monetary policy, with shifting expectations for the path of Federal Reserve interest rates. Volatility was particularly pronounced in South Korea, where high levels of retail investor participation and the widespread use of leveraged ETF products amplified market swings.

China markets were mixed, with internet platforms and consumer-related companies rebounding strongly, while AI-linked stocks experienced profit-taking after a period of strong performance. Elsewhere, smaller ASEAN markets including Indonesia and Singapore benefited from shifting regional fund flows and attracted renewed investor interest. The Indian market also saw gains, supported by supportive macro fundamentals and resilient earnings growth.

Bond

Global bond markets came under pressure in July as government bond yields moved higher across major developed markets. In the US, Treasury yields rose sharply, with the 10-year Treasury yield increasing by 27 bps to 4.74%, while the 30-year yield climbed above 5.25%, reflecting persistent inflation concerns and reduced expectations for near-term monetary easing. European bond markets also weakened, with German and UK 10-year government bond yields rising by 35 bps and 29 bps, respectively. Meanwhile, Japan's 10-year government bond yield increased by 11 bps to 2.79%. Against this backdrop, global government bonds posted a negative return of 0.21% during the month, while global investment grade and high yield corporate bonds returned -1.07% and -0.10%, respectively.

Outlook

Markets continue to navigate a complex environment in which structural innovation intersects with an uncertain macroeconomic and geopolitical backdrop. Global growth remains resilient but uneven, while renewed energy and supply-side pressures have complicated the disinflation process. Central banks are therefore likely to remain data-dependent, with the path towards lower policy rates increasingly uncertain and unlikely to be linear. Elevated public debt, trade fragmentation and geopolitical tensions continue to influence energy prices, supply chains, fiscal priorities and investor sentiment. We believe the long-term structural drivers linked to artificial intelligence, automation and digital infrastructure remain firmly intact: the AI trade is not over. However, the market is becoming significantly more selective. Hyperscaler capital expenditure remains critical but is increasingly a hygiene factor rather than sufficient evidence of competitive advantage. Investors now want proof that AI investment can generate sustainable revenue growth, margins and returns on capital.

Recent earnings have demonstrated genuine monetisation in cloud services, enterprise platforms, advertising optimisation and developer tools. They have also highlighted rising depreciation, energy requirements and operating costs. The next stage of the AI cycle should therefore be determined less by access to computing capacity and more by economic productivity. Agentic software, industrial automation and robotics are likely to become increasingly important, although enterprise adoption and workflow redesign may delay their contribution to earnings. A consolidation phase across parts of the AI complex would not be surprising as markets reassess capital intensity, competitive positioning and the timing of returns. Near term, reduced macro visibility and elevated volatility should favour agile companies with pricing power, resilient balance sheets and durable free-cash-flow generation. We see scope for recoveries in high-quality names as market leadership broadens, but the distinction between temporary weakness and structural disruption will remain critical. Software offers diversification and participation in wider AI adoption, although not every apparent “AI loser” represents a genuine recovery opportunity.

Beyond the largest technology platforms, robotics, healthcare and biotechnology are increasingly coming to the fore. Quantum computing remains worth monitoring, although commercial timelines and valuations require discipline. Demand also remains robust across data infrastructure, semiconductors, electrification, automation, energy efficiency and grid resilience. Expanding data-centre capacity is making access to electricity, cooling and grid connections increasingly important, creating opportunities for companies that enable the AI ecosystem.

European financials enter H2 2026 on solid footing, with H1 earnings beating estimates on strong capital markets activity and stable credit quality, prompting upward guidance revisions. Looking forward a September ECB hike is now almost fully priced in as energy driven inflation forces a hawkish pivot. This rising rate path supports NIM expansion for banks even as it pressures credit costs, reinforcing the earnings upgrade cycle and constructive sector positioning. The H1 tailwind from strong capital markets activity is also expected to continue into H2.

Defence retains strong medium-term visibility, supported by geopolitical risk, higher spending commitments and long-duration procurement pipelines. In Europe, fiscal expansion and industrial policy remain important catalysts around defence readiness, energy security, infrastructure, electrification and strategic autonomy. The region still faces uneven industrial momentum, energy sensitivity, fiscal constraints and regulatory complexity. Nevertheless, defence procurement, infrastructure modernisation and the reshoring of critical capabilities should support companies exposed to automation, semiconductor equipment, electrical infrastructure and power management.

Against this backdrop, we retain a constructive medium-term view on quality growth. The environment should reward companies that compound earnings through innovation, scale, pricing power and disciplined capital allocation rather than relying on cyclical recovery or multiple expansion. The remainder of 2026 is likely to remain volatile, but this is a backdrop we would welcome. A broadening of market leadership and renewed emphasis on fundamentals should favour strategies anchored in quality. The key will be disciplined stock selection and a preference for companies capable of translating structural growth exposure into tangible earnings and cash-flow growth.