General | August 5, 2022
Market sentiment improved in July amid speculation that a slowing global economy will prompt central banks to redirect their focus and scale back rate hikes to rein in decades-high inflation. , triggering a rally in stocks and bonds. Investors also cheered better-than-expected U.S. earnings results that helped dispel some of the worst recession fears and gave equity investors a break last month.
Global equity markets generated positive results in July as the backdrop of falling bond yields favored equities. The MSCI All Country World Index rose +6.9%, with developed markets (+7.9%) leading the charge and outperforming their emerging market counterparts (-0.7%). Regionally, the S&P 500 gained +9.1%, while the S&P/TSX also generated positive performance (+4.4%) but underperformed its developed market peers given the decline monthly commodity prices. Overseas, developed international equities gained +4.9%, while the emerging markets benchmark bucked the global trend and fell during the month, mainly due to a sharp decline in equities Chinese.
Fixed income markets also generated positive results as signs of slowing economic activity prompted traders to moderate their bets on aggressive central bank tightening. The closely watched 10-2 year yield curve has inverted, underscoring growing fear among market participants that a recession is looming. The 10-year US Treasury yield fell 36 basis points to 2.65% (a three-month low) and the 2-year Treasury yield fell 7 basis points to 2, 88%. Similarly in Canada, the 10-year government bond yield fell 61 basis points to 2.61%, while the 2-year yield fell 13 basis points to 2.96. For the month, the Barclays US Aggregate bond index rose 2.4%, while the FTSE Canada bond universe gained 3.9%.
The US dollar strengthened in July, with the DXY index hitting a 20-year high. The US Dollar’s gains were mostly visible against the Euro, as the Euro’s decline was perpetuated by a weak European economy, unfavorable interest rate differentials as the European Central Bank lags the Reserve federal government in its tightening campaign and the energy crisis in Europe.
In commodity markets, oil had another volatile month marked by escalating concerns over an impending economic slowdown, with lingering fears of growth largely overshadowing a squeeze in the physical oil market, in part due to rising trade flows from Russia. Gold also retreated. While high inflation and growth threats generally favor bullion, its safe haven status has been pushed aside by an ever-stronger greenback. Finally, copper fell as fears of a global recession weighed on demand prospects for the metal, which is considered an economic indicator due to its wide range of uses.