Monthly Market Perspective - July 2026

During July, markets operated in an environment characterised by renewed geopolitical tensions and the growing importance of US political dynamics.

The latest escalation in the Middle East brought energy markets back into focus, while the approaching US midterm elections increasingly influenced investor positioning across asset classes.

Despite the deterioration in the geopolitical backdrop, risk assets displayed greater resilience than expected, supported by a strong US dollar, the continued resilience of the US economy and the belief that the conflict is likely to remain contained within a prolonged but non-systemic scenario.

Throughout the month, the perception strengthened that major central banks remain committed to a cautious approach to inflation management, maintaining a restrictive stance while avoiding excessively aggressive policy actions.

Federal Reserve

The Federal Reserve maintained a restrictive bias, supported by US dollar strength and medium-term inflation expectations that remained relatively contained despite the renewed geopolitical deterioration.

Markets continue to rule out a rapid reversal of monetary policy, while closely monitoring the potential impact of further energy shocks on inflation over the coming quarters.

European Central Bank

The European Central Bank also continues to operate in a challenging environment characterised by moderate growth and persistent inflationary pressures.

Attention remains focused on the risk that renewed energy tensions could slow the disinflation process and extend the current phase of elevated interest rates.

Overall, markets continue to price a "higher for longer" interest-rate environment in both the United States and Europe.

During the month, political and technological factors played an increasingly important role in shaping economic expectations.

United States

The approach of the US midterm elections is gradually becoming a more relevant factor in market interpretation.

The strength of the dollar, the maintenance of a restrictive monetary stance and the containment of inflation expectations have increasingly been viewed through a pre-election lens.

At the same time, investors have started to question the sustainability of the investment cycle associated with artificial intelligence. While AI remains one of the key drivers of US growth, concerns are emerging around rising leverage, the sustainability of capital expenditures and growing competition from Chinese AI models.

Europe

Europe continues to appear more vulnerable to external shocks.

Energy dependence, more limited exposure to major technology themes and moderate economic growth leave the region increasingly sensitive to any deterioration in the geopolitical environment.

Geopolitics once again became the dominant market driver during July.

The widening of tensions into the Red Sea and the persistent uncertainty surrounding the Strait of Hormuz reignited concerns about global energy security.

WTI crude oil remains the key indicator to monitor:

• levels below USD 80 per barrel support the stabilisation of inflation expectations;
• a return towards the highs of the year would reopen the risk of renewed inflationary pressure.

Market attention is also focused on:

• historically low Western strategic oil reserves;
• the ability of the global energy system to rebuild inventories;
• developments in Chinese crude-oil imports.

The main macroeconomic risk remains a gradual return to a stagflationary environment characterised by weaker growth and higher energy prices.

Despite the deterioration in the geopolitical backdrop, financial markets demonstrated a notable ability to absorb negative developments.

Fixed Income

Investor focus remains centred on the evolution of real yields and inflation expectations.

Real yields remain at historically elevated levels and continue to provide support for fixed-income investors. However, the risk of renewed increases in inflation expectations limits the potential for a structural decline in nominal yields.

Against this backdrop, investor preference continues to favour:

• floating-rate instruments;
• opportunistic exposure to the long end of the yield curve;
• inflation-linked bonds.

Equity

Equity markets continued to benefit from the resilience of the US economy and growth expectations linked to artificial intelligence.

At the same time, several developments within the technology sector suggest growing scrutiny around the sustainability of investment programmes and companies’ ability to translate rising capital expenditure into durable earnings growth.

Artificial intelligence remains a central investment theme, but markets are becoming increasingly selective.

During July, the US dollar assumed an increasingly important role in shaping the macro-financial landscape.

Dollar strength contributed to containing imported inflation, supporting demand for Treasuries and reinforcing the resilience of bond markets.

At the same time, investors have increasingly begun to interpret market developments through the prism of the upcoming US midterm elections.

The interaction between political dynamics, dollar strength and monetary policy could become one of the key market drivers during the second half of the year.

July marked the return of geopolitics as a key market driver, but with an important addition: the growing influence of US political dynamics and dollar strength in shaping investor expectations.

In particular:

• energy risk remains the main source of macroeconomic uncertainty;
• the dollar has become a key variable for inflation, bond yields and capital flows;
• fixed-income markets continue to favour floating-rate instruments, while gradually showing greater interest in long-duration exposure from a 2027 perspective;
• artificial intelligence remains an important growth engine, although questions are emerging regarding investment sustainability and increasing Chinese competition.

In this environment, portfolio management requires flexibility and selectivity, with close attention paid to developments in the Middle East conflict, the outlook for the US dollar and the trajectory of inflation.