Deal or No Deal

Market Reports

12 Aug

Written By Lawrance Private Wealth

July was a month of positive momentum for global markets, fueled by significant progress in trade negotiations.

The US signed several trade agreements, most notably with the EU and Japan, which de-escalated tariff threats and instilled market confidence.

Equities delivered positive returns, while bond yields increased in response to central banks holding monetary policy steady.

Please click here to read our July 2025 markets report as a PDF.

Trade Deals Boost Markets

Trade Deals Boost Markets

Buoyed by a series of trade agreements announced between the US and its key partners, markets maintained their upward trajectory in July.

The most notable was with the European Union (EU), whereby the US agreed to lower its reciprocal tariff from 30% to 15% in exchange for commitments to purchase US energy and military equipment. The US signed a similar trade deal with Japan, in addition to agreements with South Korea, Indonesia and the Philippines.

The month was rounded out by an update of the reciprocal tariff rates originally announced in April. In summary, countries were placed into one of four buckets:

A 10% baseline rate for countries with which the US had a trade surplus (Australia)
A 15% for countries that had agreed to a trade deal or had a modest trade deficit (EU, Japan, South Korea)
A higher rate for countries with no trade deal and large trade deficits (Canada, Switzerland, India)
A negotiated pause on tariffs to allow for further negotiations (China, Mexico)

Nations are effectively taking part in a global game of Deal or No Deal. Some are accepting the briefcase (concessions in exchange for a lower tariff rate). Others are holding out for a better deal, a gamble that may or may not pay off.

Notwithstanding trade progress, we’d caution that the negotiations remain preliminary. Finer details need to be agreed upon, while the US has yet to reach agreements with its three largest trade partners (Canada, Mexico, China).

Australia appears well-positioned, aided by the timely lifting of biosecurity restrictions on US beef the week before the updated reciprocal tariff list was released. Tensions however over the Pharmaceutical Benefits Scheme give the US potential leverage to raise tariffs in pursuit of concessions.

As always, we advocate for a long-term approach to investing. Our monthly updates aim to explain market developments, but our philosophy remains the same: patient and prudent capital allocation creates long-term wealth.

Should you wish to discuss the July market report in more depth, please reach out to your advisor.

Australian Economy

The Reserve Bank of Australia (RBA) unexpectedly kept the interest rates unmoved at 3.85%, despite widespread market expectations for a 25 basis point cut.

Monthly headline inflation of 2.1% and falling employment were seen as a double green light for the central bank to go ahead with a second consecutive cut.

Governor Michele Bullock however explained that the monthly headline inflation wasn't a reliable indicator of cost of living pressures.

The Governor instead placed greater emphasis on the quarterly CPI numbers, for which the most recent report showed underlying (rather than headline) inflation was 2.9%, marginally within the central bank’s 2-3% target band.

In other words, the board preferred to wait until a second quarterly inflation read to confirm inflation was indeed under control.

The board voted 6-3 to keep rates on hold, highlighting how close the call was. Bullock said the decision was "about timing rather than direction," which suggested a rate cut was likely in August if the quarterly CPI data, released at the end of July, came in as expected.

To that end, headline inflation came in at 2.1% for the June quarter. Underlying inflation, the RBA’s preferred measure, fell to 2.7%.

Importantly, services inflation eased to 3.3% and goods inflation fell to 1.1%. In a separate release, the employment rate ticked up to 4.2%, providing further indications that the economy is sufficiently constrained.

Equities

Global equities rallied across the board in July, buoyed by the aforementioned progress on trade talks. The MSCI World (ex-Australia) finished 1.3% higher, led by strength in the United Kingdom and China.

The S&P/ASX 200 added 2.4% in June, and finished just shy of its all-time high. Sectors more exposed to global forces performed strongly, with healthcare and energy increasing 9.1% and 5.7% respectively.

The US equity market recorded its third straight month of gains. The S&P 500 hit a new all-time high, underpinned by trade certainty and robust corporate earnings.

Fixed Income

Bond yields gained in July as central banks resisted changes to monetary policy. The US Federal Reserve kept interest rates steady at 4.25-4.50% for the fifth consecutive month.

The majority of the committee is waiting for more data to guide monetary policy, particularly the potential effects of tariffs on inflation. Two committee members did however dissent, the first time this has happened in over 30 years.

Elsewhere, the European Central Bank kept rates on hold at 2.15% after delivering a rate cut in June. The Bank of Japan also kept the monetary policy on hold at 0.50%.

Australian 10-Year Government Bond yields finished the month higher, in line with international markets and following the RBA’s more cautious approach to rate rises.

The Bloomberg Global Aggregate Bond Index fell 0.14% in July. Recall that bond prices and yields move in opposite directions.

Commodities

Commodities moved higher in July. Oil prices gained 7.3% after the US threatened sanctions on countries importing Russian oil.

Iron ore reached its highest level since April on renewed optimism regarding China. Officials announced plans to address excess capacity, in addition to a large hydropower project expected to be several times bigger than the Three Gorges Dam.

Still, investors are sceptical of a sustained recovery, largely due to tepid demand. New home prices in China have fallen for 24 months in a row.

The strong US dollar quelled gold prices, with the precious metal inching 0.3% higher to US$3,299 per ounce.

Currencies

After months of declines, the US dollar appeared to find a base in July. The greenback gained against almost all trade partners, including the Canadian dollar, Chinese Yuan, and Euro. For the year, the US dollar is down 8% on a trade-weighted basis.

The Australian dollar retreated 2.4% against the USD, largely due to US Dollar strength.

Positively, the Australian dollar trade-weighted index, which values the AUD against foreign currencies in line with their share of trade, finished at its highest point since November.

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Lawrance Private Wealth