Global equity markets generally rose during July. Concerns about the UK’s decision to leave the European Union (EU) appeared to subside as the month progressed and investors’ appetite for equities was boosted by hopes that central banks in the UK, Europe, and Japan will introduce fresh stimulus measures.
In the UK, however, investors were surprised by the Bank of England’s (BoE’s) decision to leave interest rates unchanged at 0.5%. A cut in rates, accompanied by stimulus measures, had been widely expected; nevertheless, most members of the Monetary Policy Committee “expect monetary policy to be loosened in August”. During the month, the BoE warned of a “challenging” outlook for the UK’s financial stability, citing high levels of indebtedness amongst UK households and mounting risks in the commercial property market. The FTSE 100 Index rose by 3.4% during July.
European markets climbed during July; however, sentiment was dampened by fresh terrorist attacks in France and by ongoing speculation about Brexit. Policymakers at the European Central Bank (ECB) fear that Brexit’s impact could be “significant”, creating “negative spillovers” for the euro area. The eurozone’s economy expanded by 0.3% during the second quarter, compared with first-quarter growth of 0.6%. The Dax Index rose by 6.8% during July, while the CAC 40 Index climbed by 4.8%.
The US economy expanded more slowly than expected during the second quarter of 2016, registering annualised growth of 1.2%. First-quarter growth was revised down from 1.1% to 0.8%. Federal Reserve (Fed) policymakers opted to leave interest rates unchanged at their July meeting; whilst acknowledging robust growth in household spending and signs of a strengthening labour market, they remained reluctant to tighten rates until inflation meets its 2% target . The Dow Jones Industrial Average Index rose by 2.8% during July.
In Japan, the yen was volatile during July. Having surged amid strong demand following the UK’s Brexit decision, the yen subsequently fell sharply against the US dollar, curbed by mounting speculation that the Bank of Japan (BoJ) would expand its stimulus measures. In the end, the BoJ doubled its purchases of exchange-traded funds, but opted not to expand its programme of government bond purchases. The news disappointed some investors and triggered a sharp increase in demand for the yen as the month drew to a close. Over July as a whole, the benchmark Nikkei 225 Index rose by 6.4%.