Global equity markets advanced in July, responding positively to resilient US economic data, signs of a bottoming in the Chinese economy, and better-than-expected US Q2 reporting season results with around 80% of US companies beating Q2 consensus forecasts.
The MSCI World Equity Index gained +1.2%, with the tech heavy NASDAQ Composite Index (+3.7%) leading gains as mega‑cap US technology stocks confirmed strong revenue growth leverage to the AI thematic. The US S&P500 gained +2.1% while the Russell 2000 Small Cap index gained +1.6%.
In Australia, the ASX200 finished July up 2.3%. Improving China sentiment was clear in the performance of the Australian resource sector, with the ASX300 Metals & Mining Index gaining +4.2% over the month. Rotation was apparent domestically, with capital cycling from Australian banks to resources.
Australian small companies outperformed, the ASX Small Ordinaries Index rising +2.8%. Australian retail sales surprised to the upside, while a lack of profit warnings ahead of the FY25 reporting season in August supported sentiment.
Asian equities outperformed, led by South Korean (+5.6%) and Chinese equities (MSCI China +4.5%), with the region attracting support as cheap valuations combined with tariff certainty and increasing expectations of large-scale infrastructure investment from Beijing.
IMF Upgrades Forecast
The International Monetary Fund upgraded its global growth forecast amid signs that Trump’s trade war will do less damage to the world economy than initially feared, with a weaker greenback cushioning the impact of tariffs on US trading partners.
The Fund’s updated World Economic Outlook shows that global growth is expected to be 3% this year and 3.1% in 2026, up from earlier projections published in April of 2.8% and 3%, respectively.
The world’s two largest economies, the US and China, both also received upgrades as did Australia. The IMF’s chief economist said that he saw a “tenuous resilience” in the global economy despite the chaotic rollout of steep tariffs on US trading partners in recent months. He added that growth was less affected because many of the levies were ultimately not as severe as originally planned.
The US Reporting Season
The stock market relief rally continued in July, having started with the announcement in April of the 90-day tariff negotiation period. More tariff agreements have since been reached, most notably with China and the European Union. The US economic recovery in the second quarter further supported investment sentiment with US GDP recovering from -0.5% to +3.0%.
Two thirds of the S&P 500 constituents have reported their second calendar quarter results at the time of writing, with Revenue and Earnings growing +6% and +9% respectively. The weak US dollar has, for the first time since 2022, become a tailwind for US corporate earnings. Furthermore, operational efficiencies continue to improve, particularly in technology‑related businesses. Lastly, it has become clear that AI activity is increasing at a rapid rate, to the benefit of those showing their active participation in AI, and reflecting in share prices.
Aggregate S&P 500 year/year EPS growth is tracking at 9% for 2Q, above the consensus estimate of 4% growth at the start of the earnings season. Strong guidance has helped drive a broad-based increase in analyst earnings estimates, and 56% of companies providing full-year EPS guidance have lifted guidance this quarter.
Commentary from 2Q earnings calls to date has reflected corporate confidence in the ability to mitigate the impacts of tariffs on profits, with strategies including managing supply chains, increasing prices, and cutting other costs. Of companies discussing the impact of tariffs on their businesses, 27% explicitly stated they now expect the profit headwind from tariffs to be smaller than their previous estimate.
Australia
In Australia, the 12-month CPI inflation rate is back to 2%, however the RBA’s preferred ‘trimmed mean’ measure is higher at 2.7%. These numbers have been artificially depressed by temporary government power and rent subsidies, and the RBA has made it clear it will look through such effects in its analysis. While the RBA resisted market expectations to cut rates at its July meeting, we expect a rate cut in August.
Unemployment in Australia has been rising slowly but steadily over the past year, and is now up to 4.3%. This is still a low rate, and below the RBA’s theoretical non-inflationary rate of unemployment (NAIRU) of 4.5%.
‘Participation rates’ (the number of people in the workforce as a percentage of working age population) are at record highs, but this is almost entirely due to expansionary government-related hiring. The government sector has been expanding, while the private sector is struggling with previous rate hikes inhibiting revenues and raising financing costs. With the latest data, rising unemployment and falling inflation are sufficient for the RBA to make another rate cut at its next meeting on 11-12 August.
Bond Markets, Currencies and Commodity Prices
Bond yields rose at the long end, reflecting fears of higher inflation ahead. Global growth, spending, and employment all remain reasonably strong – defying predictions of slowdowns and recession.
Global bond markets experienced modest losses in July. In the United States, the 10-year Treasury yield rose slightly to 4.37% (+0.13), and in Australia bonds ended the month at 4.30% (+0.18).
The AUD/USD exchange rate closed the month at US$0.642, a fall of around 2%.
Commodities markets were generally positive, with oil and gold easier. Iron ore was boosted by the much-awaited Chinese stimulus. Crude Oil prices experienced volatility due to the Middle East conflict, and Brent fell almost 10% alongside the easing of tension with Iran following the “12 Day War”. Brent stabilised around the US72/Bbl level. Gold prices eased amid reduced demand for safe-haven assets, and ended the month slightly lower at US$3,294/t.oz. Iron ore prices were surprisingly firm, up around 6% to US$99/T, largely due to signs of stimulus form China.
Conclusion
Another month of solid gains on global share markets across almost all industry sectors and countries, despite President Trump’s unpredictable tariff deals. Inflation continues to ease, but central banks remain cautious and reluctant to cut rates further until they fully understand the impact of tariffs on inflation. In summary, July 2025 was marked by consolidation and cautious optimism in financial markets as investor sentiment became more relaxed about the impact of tariffs, corporate resilience and hopes of central bank interest rate cuts.
