Josh Clayton, Assistant Portfolio Manager at Blackfinch Group, shares the first in his series of fortnightly market reports, amid ongoing geopolitical tensions.
At Blackfinch, we believe successful long-term investing depends on the ability to adapt to change, evolve as conditions shift and remain focused on the opportunities ahead.
That approach was particularly relevant this week. Global markets balanced encouraging signs of economic resilience against renewed geopolitical uncertainty, rising oil prices and changing interest-rate expectations.
However, developments in the Middle East reminded investors how quickly the outlook can change, particularly when geopolitical tensions affect energy prices, inflation and bond markets.
Global Markets
Brent crude oil briefly exceeded $100 per barrel for the first time in almost two months as Middle East tensions escalated. The rise reignited inflation concerns and pushed global bond yields higher.
Markets pared some losses later in the week as diplomatic efforts reduced fears of an immediate supply disruption. However, oil remained well above the levels seen earlier this month.
The week served as a reminder that geopolitical events can quickly alter the economic outlook, particularly when they affect energy prices and inflation expectations.
United Kingdom
Andy Burnham became the UK’s seventh Prime Minister since 2016, announcing plans to reduce household energy bills, expand regional devolution and appoint John Healey as Chancellor of the Exchequer.
Economic data also offered some encouragement. Data provider S&P Global reported that the UK Services Purchasing Managers’ Index (PMI) rose from 48.8 to 51.8 in July. This marked a return to expansion and exceeded expectations of 49.4.
Retail sales increased by 1.0% month-on-month in June, compared with expectations of a 0.3% contraction. The figures suggest that UK consumer spending remains resilient despite higher borrowing costs.
North America
Economic activity in the US continued to show strength. The S&P Global Composite PMI rose from 51.9 to 53.6, its highest level in eight months, driven by stronger services activity. Manufacturing PMI eased to 53.8.
Initial jobless claims fell to 187,000, compared with expectations of 215,000. This was the lowest reading since 1969 and reinforced the continued strength of the labour market.
However, rising oil prices also lifted inflation expectations. This pushed Treasury yields higher and reduced expectations of a near-term interest-rate cut from the Federal Reserve.
Europe
The European Central Bank left its three key policy rates unchanged. The Deposit Facility Rate remained at 2.00%, the Main Refinancing Rate at 2.15% and the Marginal Lending Facility at 2.40%.
However, the Bank adopted a more hawkish tone. President Christine Lagarde warned that “the full effects of the energy shock have yet to play out”. She added that the European Central Bank is closely monitoring the intensity and duration of higher energy prices, as well as any second-round effects.
Economic data pointed to broader improvement across the Eurozone. Manufacturing PMI increased from 51.4 to 52.0, while Services PMI rose from 49.4 to 51.6, signalling a return to wider economic expansion.
In Germany, the GfK Consumer Climate indicator slipped to -29.6 from -29.3, reflecting weaker expectations for household finances.
Asia
In China, state-backed investors purchased almost RMB60bn, approximately US$8.9bn, of domestic equities. The People’s Bank of China also injected RMB100bn of liquidity to support market confidence ahead of the Politburo meeting, the policymaking body responsible for setting the country’s economic priorities.
In Japan, core inflation accelerated to 1.6% year-on-year from 1.4%. The yield on the 10-year Japanese Government Bond also rose to 2.80% from 2.69%, reinforcing expectations of further policy tightening from the Bank of Japan.
Japan approved its annual economic strategy, prioritising investment in artificial intelligence, semiconductors and the energy transition. Meanwhile, the yen remained close to a 40-year low against the US dollar.
Adapting to an Evolving Market
This week’s developments underline why investors need to consider both the immediate market environment and the longer-term forces shaping the global economy.
Economic activity continues to show resilience, but markets are evolving in response to geopolitical risk, higher energy prices and shifting expectations for monetary policy. These influences may affect countries, sectors and asset classes in different ways.
At Blackfinch, we believe portfolios should be built with change in mind. Diversification and a clear understanding of risk can help investors adapt as conditions develop, without losing sight of their long-term objectives. Markets will continue to evolve. By taking a considered approach and remaining focused on the bigger picture, investors can be better placed to navigate uncertainty and pursue opportunities that may help them thrive over time.
