Key points

• Despite trade tensions between the US and China dominating headlines, financial markets have been little affected. Strong earnings and ongoing expansionary policy (interest rates primarily remaining low for a longer period in most major economies) have supported markets.
• The other key news released over the month of July was the inflation figures for the June quarter for a number of major economies, including Australia. Whilst unemployment has been improving, it is yet to have a major impact on driving up inflation in Europe, Japan or Australia; whilst the US has started to show some increases, it is yet to be significant. This has left investors anticipating overall global growth to remain positive but at a more moderate pace.
• As a result, over July the Australian share market (ASX200) had another positive month, up 1.4%. Key drivers during this period included the telecommunications sector, primarily with Telstra improving from its recent lows, and consumer discretionary stocks which increased on better than anticipated earnings announcements (e.g. JB Hi-Fi performed well despite the fears over the impact of Amazon)
• Australian economic growth is likely to remain solid, despite the effect of drought conditions on the rural sector. Whilst farmers in Queensland and NSW face severe conditions, over the short term it is noted that rural exports have been boosted as some farmers are still experiencing good conditions (particularly in WA), while others have responded to dry weather by raising slaughter rates and thus increasing meat production. Elsewhere, business conditions remain positive, with business confidence above average, especially for goods-related sectors. Whilst construction from residential housing has started to cool, the slack has been picked up by public infrastructure spending. This is helping the Australian economy maintain its positive but moderate growth rate, with flow on affects benefitting the construction and business service industries.
• In the US, as noted previously, one of the main focusses of the Federal Reserve is the level of inflation in wages, as this will be a primary driver of how quickly and how much further US interest rates are increased. Wages continues to grind higher but at a slow rate, and as a result investors remain happy with the outlook for US growth. This could change quickly however where tariffs from the US trade wars have more of impact on the economy, and/or see inflation bounce back like a spring.
• For global share Markets the MSCI World Index rebounded sharply in July up 3.2% after being negative in June. Most major markets had very strong returns with the exception of the Hang Seng based in Hong Kong which reflected investor concern over the impact of trade tariffs on the Chinese economy.

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