Global market update July

Global investment markets remained complex in July amid renewed military tensions between the United States and Iran, which unsettled investors. After hopes that a temporary ceasefire and diplomatic negotiations would restore stability in the Strait of Hormuz, recent military strikes and retaliatory actions have escalated the conflict, renewing concerns about global energy supplies, inflation, and geopolitical risk.

Oil prices have become increasingly volatile as markets assess the potential impact on one of the world’s most important shipping routes, while central banks continue to balance stubborn inflation against slowing economic growth. Despite these headwinds, global economies have remained relatively resilient, supported by solid corporate earnings, healthy labour markets and continued investment in long-term growth sectors such as artificial intelligence and infrastructure.

The Reserve Bank of Australia left the cash rate unchanged at 4.35%, providing some relief for Australian borrowers after three consecutive rate increases. Stronger-than-expected employment figures in the United States reinforced confidence that the world’s largest economy remains resilient despite ongoing global uncertainty.

Inflation in the United Kingdom eased more than expected, improving confidence that price pressures may gradually moderate and Chinese inflation showed early signs of improvement after a prolonged period of deflation, providing some encouragement for global growth.

Australian inflation remains well above the RBA’s target range, meaning further policy tightening cannot be ruled out, while the US Federal Reserve adopted a more hawkish stance, signalling interest rates may remain higher for longer.
The European Central Bank and Bank of Japan both lifted interest rates as inflationary pressures persisted. China’s domestic economy continues to struggle amid weak consumer spending and ongoing weakness in the property market.
Higher global interest rates continue to place pressure on borrowing costs and investment markets.

Base Case (72% Probability)

While global markets have demonstrated resilience, geopolitical tensions have once again intensified following renewed military action between the United States and Iran. The potential for further disruption to shipping through the Strait of Hormuz remains a significant risk for global energy markets and inflation, reinforcing the likelihood that investors will continue to experience heightened market volatility over the coming months.

We continue to expect periods of market volatility while investors assess inflation data, interest rate decisions and economic growth. Longer term, structural growth themes remain attractive. Investment in artificial intelligence, manufacturing, and energy infrastructure continues to create opportunities across global markets, though higher development costs may pose short-term challenges for technology companies.

Bear Case (14% Probability)

The greatest downside risk remains a significant slowdown in global economic activity. If consumers reduce spending while businesses scale back investment, particularly in the United States, company earnings could weaken at a time when share market valuations remain relatively high.

The escalation of conflict in the Middle East or another sharp rise in oil prices could reignite inflation, leaving central banks with little flexibility to stimulate economic growth. Continued weakness in China’s property market also remains a risk for Australia’s economy, given the importance of Chinese demand for Australian exports.

Bull Case (14% Probability)

The most positive outcome would see geopolitical tensions ease significantly and inflation moderate further, enabling supply chains to normalise. Lower energy prices, improving consumer confidence and ongoing investment in artificial intelligence could support stronger corporate earnings and broader economic growth.

If inflation does fall, central banks may eventually be able to reduce interest rates, creating a more supportive environment for businesses, consumers and investment markets.

Australia would also benefit from stronger global growth, stable commodity demand, and continued government investment, which would support economic activity across a range of sectors.

While recent events have demonstrated how quickly market conditions can change, the broader economic foundations remain resilient. We believe that maintaining a diversified, long-term investment strategy is the most effective way to navigate periods of uncertainty.

As always, investors should avoid reacting to short-term market movements and instead focus on their long-term financial objectives. North Advisory continues to monitor global developments closely and will adjust investment strategies where appropriate to help clients remain well-positioned for changing market conditions.