Markets in July did see a gradual shift away from the geopolitical concerns that dominated the second quarter and back towards monetary policy, trade and corporate earnings. Although tensions in the Middle East remained elevated, the intermittent ceasefire between the US, Israel and Iran, allowed investors to shift focus on the underlying strength of the global economy and the resilience of corporate profits. Energy markets remained volatile, however, with renewed attacks on shipping and sanctions relating to Iranian oil periodically pushing oil prices higher before easing again as fears of a broader disruption subsided.

Equity markets delivered another positive month. Strong second-quarter corporate earnings, particularly from large technology companies, reinforced investor confidence that artificial intelligence investment continues to drive robust profit growth despite elevated valuations. Market leadership broadened modestly beyond the largest technology companies, with financials and industrials also benefiting from resilient economic data and expectations that global growth will remain positive through the second half of the year. European equities generated more modest gains as investors balanced improving corporate fundamentals against ongoing fiscal and energy-related uncertainties.

Bond markets remained relatively subdued but continued to reflect uncertainty surrounding inflation and monetary policy. The European Central Bank left interest rates unchanged during the month while maintaining a cautious stance towards future policy decisions. Similarly, investors increasingly expected the Federal Reserve to leave rates unchanged at its July meeting, although stronger inflation data, elevated oil prices and ongoing tariff measures prompted markets to reduce expectations for policy easing later in the year. Longer-dated government bond yields remained elevated as investors continued to assess the implications of persistent fiscal deficits and increased government borrowing across developed economies.

Economic data continued to point towards a resilient but moderating global economy. Labour markets remained robust, while business surveys suggested manufacturing activity was stabilising after a prolonged period of weakness. Inflation continued to ease gradually across many developed economies, although services inflation remained above central bank targets and policymakers reiterated that future interest-rate decisions would remain firmly data dependent.

Overall, strong corporate earnings, continued investment in artificial intelligence and resilient economic fundamentals provided support for risk assets despite geopolitical issues. However, elevated valuations, ongoing fiscal challenges, uncertainty surrounding global trade and the potential for renewed geopolitical disruption suggest that markets remain vulnerable to periods of heightened volatility. Investors are likely to remain highly sensitive to developments in inflation, central bank policy and international relations over the coming months.