Markets Unwrapped: July 2025
July saw tariff deals announced, however the tariffs that would notably impact the economy were again delayed. Share markets seemed unconcerned and similarly to the initial delays, continued to see equities perform strongly in almost every market. This continued momentum has seen valuations in the US near the highest valuations this century and continues to show the need for caution.
Australia has also continued with its momentum, increasing 2.3% for the month, as although the RBA held the cash rate for July, it became a certainty the rates would decrease in August. The rotation into resources continued and with report season starting in July, single day volatility was higher then usual as companies provided updated to earnings. Despite the momentum coming partially via different sources compared to the rest of the world, changes to US equities, would still likely impact Australian equities.
The Australian 10-year government bond yield increased to 4.27% to close out July, as the rate cut everyone expected was pushed back a month, as the RBA wanted to confirm the official quarterly inflation data had continued to ease and that the labour market remains strong. It is almost certain, we will have significant volatility in the months to come, and the defensive assets could once again see an increase as investors look to hold up their portfolios.
Despite the substantive tariffs being pushed back, once implemented the effective tariff rate is estimated to be the highest since the early 1930’s and will almost certainly cause a substantial shift in the US economy on the current path. The Fed continued to hold cash rates through July due to the further delay in tariffs, and continues to cause a rift between the Federal Reserve and Trump administration. A weaker US economy continues to be expected from the tariffs, however the true impact will be unknown until it begins to flow on to the consumer. Tariffs beginning to flow through, could be the catalyst for significant volatility across all markets.
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