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Capital Markets Update: July 2023

NOVA Wealth1 August 2023

Market updates from July

In a Nutshell

UK interest rates and gilt yields continue to rise, but market performance was fairly stable - bolstered in part by record profits reported by major UK energy suppliers. The Eurozone’s inflationary environment looks fairly healthy, and markets saw decent growth. The US job market shows signs of cooling, but wage growth remains higher than inflation. Finally, Hong Kong stocks performed well despite the continuing exports slump.

UK interest rates and gilt yields continue to rise

Interest rates in the UK continued to soar over July, driving up borrowing costs and dampening spending. At the beginning of the month, the UK two-year fixed mortgage rate hit 6.86% (the highest level since 2008) while the average five-year rate rose to 6.17%. Nationwide, TSB and HSBC have since moved to cut their fixed-rate mortgage deals - which some have taken as a sign that the Bank of England may be close to ending their cycle of interest rate hikes. However, persistent inflation makes it unclear whether we will see further Bank rate rises over the next month.

Gilt yields continue to trend upwards, with a particularly strong spike at the start of July. Two-year yields peaked at 5.49%; while five- and ten-year gilts hit 4.91% and 4.67% respectively.

Whilst interest rates and inflation remained in focus in July, UK market performance was fairly stable, with the FTSE100 up around 2.3% and the FTSE250 up 3.44%. This was driven in part by strong performance in the energy market toward the end of the month. Spurred by rising energy costs and Ofgem’s recent tweak to the energy price cap, British Gas, EDF and other major suppliers reported record profits. British Gas in particular has seen a 900% increase in Q1 and Q2 profits between 2022 and 2023.

Eurozone inflation falls, markets perform fairly well

The EU’s inflationary environment looks somewhat healthier than the UK’s. According to the Financial Times, in June the YTD change in the Consumer Price Index was 6.4% in Norway, Italy and Germany; 4.5% in France; and 5.7% in the Netherlands. In comparison, UK CPI change was 7.1%. [1]

Moreover, the ECB reports that measures of inflation are “showing signs of easing” and that “underlying inflation has likely peaked in the first half of 2023” [2]. While Eurozone inflation is still a fair way off the ECB’s target rate of 2%, this comes as positive news after what has so far been a very volatile year.

Most major European economies performed well over July. In spite of some sharp peaks and troughs, the CAC40 index showed 1.5% growth; while the DAX Performance Index rounded out the month at nearly 2%.

US job market slumps, some recession concerns

Across the pond, reports indicate that the US job market may be cooling following a year of record-setting rate hikes by the Federal Reserve. The Bureau of Labour Statistics reported 187,000 new jobs created over July. For context, the average monthly number of jobs added across 2022 was 400,000 [3]. That being said, the job market remains stable for the time being, with unemployment at a steady 3.5%, and wage growth outpacing inflation at 4.5% and 3% respectively.

However, there is still some uncertainty about whether the US will enter recession. Some think recession will likely be avoided - such as Fed Chairman Jerome Powell, who commented in May that “it’s possible that this time really is different”, in reference to signs of economic slowdown that have historically preceded recession [4].

One sign to the contrary is the widening “bond yield inversion” - in other words, the fact that yields on short-dated treasury bonds have continued to rise above long-term yields. At the end of July, the Treasury two-year yield was at 4.86%; while the ten-year yield was at 3.96%. This can sometimes indicate a recession, as it suggests that investors are willing to accept lower yields in the long run because they anticipate economic slowdown in the future.

Hong Kong exports fall, but market performance is strong

Hong Kong stocks performed well over July, despite significant downward pressure from falling exports. The HK Census and Statistics department reported in June that overseas shipments had dropped 15.6% from the previous year; and July marked the 13th consecutive month of declining exports. However, the Hang Seng index grew around 4% across the month (despite an initial slump of nearly 5%). [5]

Shanghai saw more middling growth, with the SSE Composite Index at 1.5% across the month.

Looking ahead

Global economic performance has been volatile across the year so far. Whilst we’ve seen positive returns across many markets since January, the outlook for Q3 & Q4 remains uncertain as inflation rates start to diverge and markets continue to fluctuate. However, this only emphasises the importance of a long-term investment strategy - especially since periods of sustained volatility have historically been followed by a market recovery that rewards patient investors. In the meantime, diversification of investments, a strong cash reserve and a robust plan will help to weather the storm.

Important information

The value of an investment, and any income from it, can fall or rise. Investors may not get back the full amount they invest. Past performance is not a reliable indicator of future results. Personal opinions may change and should not be seen as advice or a recommendation.

[1] Romei, V. and Smith, A. (2022). Inflation tracker: latest figures as countries grapple with rising prices. Financial Times. [online] 28 Jan. Available at:

[2] Canepa, F. (2023). ECB says underlying inflation has peaked in good omen for future. Reuters. [online] 4 Aug. Available at:

[3] Aratani, L. (2023). US economy adds 187,000 July jobs in sign labor market is cooling. The Guardian. [online] 4 Aug. Available at:

[4] McGeever, J. and McGeever, J. (2023). Column: The elusive US recession and its ‘misleading’ indicators. Reuters. [online] 11 Jul. Available at:

[5] Xie, Y. (2023). Hong Kong Exports Fall as Global Demand Slump Weighs on Economy. [online] 27 Jun. Available at:

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