Hopes that the US and Iran would agree terms over a ceasefire drove the price of a barrel of Brent Crude oil below its pre-war level early in July. However, relations between the two sides quickly soured and the peace deal collapsed, leading to fresh conflict in the region.
- Tech-heavy indices fell during July
- Central banks in the US, Japan, Europe and UK held rates steady
- Japan and the US intervened to support the yen
Middle East conflict reignites: hopes that the US and Iran would agree terms over a ceasefire drove the price of a barrel of Brent Crude oil below its pre-war level early in July. However, relations between the two sides quickly soured and the peace deal collapsed, leading to fresh conflict in the region. The ten-year US Treasury yield hit its highest level since January 2025; meanwhile, the oil price breached US$100 per barrel for the first time since May, but ended July below US$90 following another break in hostilities.
“‘The full inflationary impact of the energy shock has yet to play out’” (Christine Lagarde)
Questions over the AI boom: investors became increasingly concerned over the pace and scale of AI spending. The technology-rich Nasdaq Index fell by 3.2% over the month, while South Korea’s KOSPI plummeted 22.2%. While Microsoft released strong second-quarter earnings , Facebook’s parent company Meta and US chip manufacturer Qualcomm reported weaker results.
Inflation remains firmly on the agenda: although the annualised rate of US inflation moderated in June from 4.2% to 3.5%, the subsequent resumption of hostilities in the Middle East is likely to have fuelled inflationary pressures in July. Federal Reserve (Fed) Chair Kevin Warsh said: “The members of our Committee have no tolerance for persistently elevated inflation.” The Fed maintained its key interest rate at 3.5% to 3.75% in July; while nine policymakers voted for no change, three voted for an increase. The Dow Jones Industrial Average Index edged 0.3% higher during July.
ECB holds rates: after raising interest rates in June, the European Central Bank (ECB) left rates unchanged in July; however, ECB President Christine Lagarde warned: “The full inflationary impact of the energy shock has yet to play out.” Eurozone inflation rose from 2.8% in June to 2.9% in July. The ten-year German government bond yield hit its highest level since 2011 in July, while the Dax Index rose by 2.5%.
Yen intervention: the Bank of Japan maintained its key interest rate at 1% and warned that core inflation was likely to accelerate to a level “clearly above” its 2% target. Following months of weakness, the yen surged against the US dollar at the end of July; the Minister of Finance subsequently confirmed that Japan and the US had jointly intervened as the yen fell to fresh lows. The Nikkei 225 Index declined by 8.1% over the month, dampened in part by its exposure to technology companies.
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