Global investment market review: July 2026

Heather Coulson, Head of Portfolio Management, discusses some of the key influences on markets in July.

During July 2026, the MSCI ACWI Index, a representative measure of global equities across developed and emerging markets, declined 1.3%. The UK led regional returns, while Asia Pacific and emerging markets declined the most. By style, growth declined, while value-oriented stocks gained ground. During the month, technology stocks, including shares of certain AI-focused companies, fell back, and mounting tension between the US and Iran pushed oil prices up and revived fears of further inflation. In fixed income, the ICE BofA Global Government Index weakened by 2.1% in sterling terms. Sterling advanced against the US dollar over the month.

Crude oil futures prices rose as hostilities resumed between the US and Iran, impacting the oil supply chain through the Straits of Hormuz.

The FTSE 100 Index, a commonly used representative benchmark of the UK’s largest equities, moved 3.6% higher. Meanwhile, the FTSE All Share Index was up 3.7%, as mid-cap stocks slightly outpaced larger names. The UK market benefitted from its limited exposure to the technology sector, while energy stocks did well as oil prices rose. In politics, Andy Burnham became the new UK Prime Minister. The Bank of England’s Monetary Policy Committee (MPC) voted to keep rates on hold in July, though three of the MPC members voted for a hike as inflation risks continue to circle. However, the UK’s annual inflation rate slowed from 2.8% to 2.6% between May and June, helped by a softening in transport costs. Meanwhile, the unemployment rate remained steady at 4.9%. The early reading of the UK manufacturing Purchasing Managers’ Index (PMI) remained in expansionary territory in June, while the preliminary UK services sector PMI rebounded from contraction.

In US equities, the S&P 500 Index dropped 1.5% in sterling terms, but the decline was just 0.1% in US-dollar terms. The Nasdaq Composite Index, which has a growth focus, weakened by 4.5% in sterling terms and was down 3.2% in dollar terms. Growth-oriented US stocks retreated, in part due to a selloff in certain technology and AI-focused companies. Second-quarter earnings season started well, with most companies outperforming expectations. The Federal Reserve (Fed) also held rates steady at its July policy meeting. Several policy members were in favour of a hike as inflation remained above target. Annual inflation did soften in June, moving to 3.5%, compared with 4.2% in the previous month, as energy costs expanded at a slower pace. Non-farm payrolls delivered 57K new jobs in June, down from 129K in May and below forecasts for around 110K additions. The advance US manufacturing PMI was little changed, remaining solidly in expansionary territory, while the services PMI saw a step up in expansion in July.

The MSCI Europe ex UK Index slipped back 0.8% in sterling terms but was flat when measured in local currencies. By country, the Netherlands declined, while stocks in Spain, Germany and France saw modest gains in local currency terms. Having raised interest rates in June, the European Central Bank (ECB) left its benchmark rates unchanged in July as policymakers continued to monitor incoming data on inflation and its wider economic impact. Annual inflation in the euro area edged up to 2.9% in July from 2.8% in June. The eurozone saw 0.4% quarter-on-quarter (q/q) growth in preliminary estimates for the second quarter, which was better than expected and boosted by government spending and AI-related investments. On an annual basis, GDP growth improved to 1% year-on-year (y/y) in the second quarter, compared with 0.5% y/y in the first quarter. The eurozone’s manufacturing PMI continued to expand, according to preliminary estimates, while the flash services PMI bounced out of contractionary territory, helped by hiring in the private sector.

Growth-oriented US stocks retreated, in part due to a selloff in certain technology and AI-focused companies.

Japan’s equities, as measured by the MSCI Japan Index, dropped 0.4% in sterling terms and 1.0% in yen terms. Technology sector weakness was partly offset by strength in stocks with heavy domestic sales. Having fallen back further for much of the month, reaching new multi-decade lows, the yen strengthened dramatically in the final days of the month as Japan and the US intervened to support the currency. The Bank of Japan’s policy rate remained at 1% – a 31-year high – as only one of the nine policymakers was in favour of a hike. Annual inflation stepped higher in June, reaching 1.7% versus the 1.5% in the previous month. Industrial production rose 4.2% y/y, which was the strongest rate of expansion in 46 months. The early manufacturing PMI remained in robust expansionary territory. Meanwhile, the flash services PMI dipped slightly but remained in expansion.

In July, the MSCI Emerging Markets Index declined 4.4% in sterling terms. Korea and Taiwan fell back in local currency terms, while China, Brazil and India made headway. Korea and Taiwan were partly hit by falls in semiconductor companies, which had been benefitting in recent months from the AI-related theme. A strengthening of the won accompanied the fall in Korea’s technology stocks. The Bank of Korea hiked interest rates by 25 basis points to 2.75%, given inflationary pressure and recent currency weakness. July’s annual inflation edged up to 3.2%, from 3.1% in June. Brazil saw continued strength in its exports, with 24.9% y/y growth during June, helped by raw material shipments to China, the EU and US. In Mexico, second-quarter GDP growth rose 1.5% q/q, its highest level in 10 quarters. Meanwhile, inflation softened to a five-year low of 3.37% from 3.94% during the previous month.

The MSCI AC Pacific ex Japan Index was down 4.2%. At the country level, Korea and Taiwan dropped back, while China, India and Australia moved higher. China benefited from asset flow rotation into some of its technology names. China’s stock market strength came despite weaker-than-expected second quarter GDP growth, which softened to 4.3% y/y, from 5.0% y/y in the first quarter amid slower domestic demand. Industrial production improved from 4.5% y/y in May to hit 5.3% y/y in June, helped by the manufacturing sector. Exports were also strong, as the AI sector and semiconductors helped propel the datapoint to a better-than-forecast 27% y/y growth during June, compared with 19.4% y/y in May. Imports were also above expectations, in part due to raw material shipments. Australia’s annual inflation softened further, slowing from 4.0% in May to 3.8% in June, as the impact of fuel prices lessened somewhat. In India, annual inflation accelerated for the eighth month in succession, reaching 4.38% from 3.93%, as transportation and food costs pushed higher.

Though major central banks kept rates on hold in July, inflationary risks remained a concern for policymakers.

Though major central banks kept rates on hold in July, inflationary risks remained a concern for policymakers. As such, government bond yields rose on a pickup in expectations of further rate hikes against a backdrop of higher oil prices and solid economic data in many regions. The 10-year US Treasury yield moved up (prices fell) from 4.42% in June to 4.76% by the end of July. The UK’s 10-year yield also jumped on energy inflation worries and expectations around future interest rate hikes. However, UK rate concerns eased somewhat by month-end. Emerging market government bonds also declined. In addition, both high yield and investment grade weakened over the month.

The FTSE EPRA Nareit Developed Index, a measure of the performance of Real Estate Investment Trusts (REITs), increased 1.3% in sterling terms. Note that REITs tend to be sensitive to interest rate expectations. During the month of June – the latest period with available figures – the MSCI UK Monthly Property Index was up 0.4%. Sentiment in the property market has been impacted by inflationary worries in recent quarters. The return-to-office trend has seen prime, energy-efficient office properties in London and other major cities remain in demand.

All index data are shown in total return sterling, unless otherwise stated.
Source: FE Analytics