Executive Summary 

  • Global markets continued to recover during July as investors looked beyond geopolitical headlines and focused once again on economic fundamentals.
  • Andy Burnham became the UK’s new Prime Minister, with financial markets reacting positively to the prospect of policy continuity and a renewed focus on long-term investment and regional growth.
  • The Iran conflictremainsunresolved, although reduced disruption to global energy supplies helped oil prices stabilise. 
  • Central banks continue to move cautiously towards lower interest rates as inflation moderates butremainsabove target. 
  • UK, European and Asian equities continue to offer attractive valuerelativeto the United States, where valuations remain demanding. 

 

Iran: From Immediate Crisis to Long-Term Risk 

The Iran conflict remained an important backdrop throughout July, although markets have become noticeably less reactive than earlier in the year. The partial reopening of shipping routes through the Strait of Hormuz has eased immediate concerns over global energy shortages, allowing oil prices to settle well below the peaks seen during the spring. Nevertheless, shipping costs remain elevated and energy markets continue to price in a meaningful geopolitical risk premium. 

The biggest change over recent months has been investor behaviour. Earlier in the year, every military development triggered large swings in both equity and commodity markets. Today, investors appear to be placing greater weight on the underlying economic outlook than on daily headlines. That is not to say the conflict has become irrelevant; rather, markets have adjusted to the likelihood that tensions may persist for some time. 

Higher energy costs earlier in the year are still working their way through supply chains, contributing to higher transportation, manufacturing and food costs across many economies. Although inflation has continued to ease overall, the conflict has almost certainly delayed the speed at which central banks can comfortably reduce interest rates. 

For long-term investors, the lesson remains unchanged. Geopolitical events create periods of volatility, but diversified portfolios have once again demonstrated their ability to weather short-term uncertainty while remaining positioned to benefit from the eventual recovery. 

 

UK Politics: A New Prime Minister, Familiar Challenges 

July saw a significant political development as Andy Burnham formally became Prime Minister following the resignation of Sir Keir Starmer. Markets reacted calmly to the transition, reflecting confidence that there would be broad continuity in fiscal and monetary policy rather than a radical change in direction. 

Burnham has already signalled that regional investment, infrastructure and greater devolution will be central themes of his government. While these policies are unlikely to have an immediate impact on economic growth, investors generally welcome initiatives that encourage long-term productivity improvements and greater business investment. 

Sterling remained relatively stable following the leadership transition, gilt yields moved only modestly and UK equity markets continued to perform well. Investors appear more focused on the government’s forthcoming Autumn Budget than on the change in leadership itself, recognising that the UK’s longer-term fiscal challenges remain unchanged. 

Overall, the market response suggests that political stability and policy predictability remain more important than changes in political personalities. 

 

Global Equities Context 

Global equity markets continued their recovery during July as concerns surrounding the Iran conflict eased and investors increasingly focused on corporate earnings and monetary policy. 

The United States continued to lag many international markets. Although the largest technology companies remain highly profitable, investors are becoming increasingly selective as elevated valuations leave little room for disappointment. Market concentration also remains a concern, with a relatively small number of companies continuing to account for a significant proportion of index performance. 

Outside the U.S., the rotation towards more attractively valued regions continued. UK and European equities benefited from improving investor sentiment and comparatively modest valuations, while Japan continued to attract international capital through ongoing corporate governance reforms. India remains one of the strongest structural growth stories globally, supported by favourable demographics, expanding infrastructure investment and a rapidly growing middle class. 

The broadening of market leadership beyond the largest U.S. technology companies remains one of the most encouraging developments for diversified investors. 

 

Central Banks: Progress Continues 

Central banks continue to make progress in bringing inflation under control, although policymakers remain cautious. 

In the United States, the Federal Reserve has maintained its data-dependent approach. Inflation continues to moderate, but policymakers remain mindful that higher energy prices earlier in the year could continue to influence headline inflation over coming months. 

In the UK, the Bank of England again held the base rate at 3.75%. With inflation continuing to move gradually towards target and economic growth remaining subdued, markets continue to expect further easing over the coming quarters, albeit at a measured pace. 

The direction of travel still appears to be towards lower interest rates, but central banks are understandably reluctant to move too quickly while geopolitical risks remain elevated. 

 

UK: Economic Recovery Still Fragile 

The UK economy continues to experience modest growth, with consumer confidence gradually improving as inflation eases and real wages recover. Business investment remains mixed, reflecting continued uncertainty surrounding the global economy and future fiscal policy. 

While domestic economic conditions remain relatively subdued, the UK stock market continues to outperform the economy itself. The internationally diversified nature of the FTSE 100 means that company earnings are driven predominantly by global demand rather than domestic economic activity. 

Combined with valuations that remain significantly below those of comparable U.S. companies, we continue to view UK equities as offering attractive long-term value. 

 

Other Viewpoints 

Cash 

Cash continues to offer attractive returns, although expectations remain that interest rates will gradually decline over the next twelve months. Investors with substantial cash holdings should remain aware of reinvestment risk as rates eventually begin to fall. 

Fixed Interests 

Bond markets delivered another relatively stable month. Expectations of gradually lower interest rates continue to support both gilt and corporate bond prices, while yields remain attractive compared with much of the previous decade. 

We continue to believe fixed income once again offers both income and diversification benefits within balanced portfolios. 

Alternatives 

Gold remained well supported during July despite the easing of immediate geopolitical tensions. Central bank buying, persistent geopolitical uncertainty and concerns surrounding government debt continue to provide support for precious metals. 

Alternative assets remain an important component of diversified portfolios, particularly during periods of economic uncertainty. 

UK Shares 

UK equities continue to benefit from attractive valuations, strong international earnings and improving investor sentiment. We remain constructive on the long-term outlook despite the relatively subdued domestic economy. 

US Shares 

U.S. equities continue to trade at historically demanding valuations. While innovation remains a significant strength, concentration risk and elevated earnings expectations leave markets vulnerable to disappointment. 

European Shares 

European equities continue to perform well as lower valuations, improving corporate earnings and gradually easing monetary conditions attract international investors. 

Asian Shares 

Japan continues to benefit from structural corporate reforms, while India remains one of the most compelling long-term investment opportunities globally. China continues to present a more mixed picture as policy support attempts to offset structural economic challenges. 

Emerging Markets 

Emerging markets delivered another positive month, supported by improving global risk appetite and a relatively stable U.S. dollar. Commodity-exporting nations continue to benefit from elevated resource prices, although selectivity remains important. 

 

Highlights & Risks 

Highlights 

  • Global markets continued to recover despite ongoing geopolitical uncertainty.
  • Andy Burnham’s appointment as Prime Minister was received positively by financial markets.
  • UK, European and Asian equities continue to offer attractive relative value compared with the U.S.
  • Fixed income continues to provide both attractive income and portfolio diversification.

Risks 

  • The Iran conflictremainsunresolved and could escalate unexpectedly. 
  • Inflation may prove more persistent than central banks currently expect.
  • U.S. equity valuations and market concentration remain elevated.
  • The UK’s Autumn Budget will be closely watched for any significant fiscal policy changes under the new government.