July Monthly Market Review

Aug 11
5 min read

Market Leadership Broadens Amid Inflation Pressures

Central banks remained cautious as energy-driven inflation risks resurfaced
UK equities, commodity-linked markets, and selected emerging markets led returns
Technology and semiconductor stocks corrected sharply, highlighting concentration risks.

The Balanced portfolio benchmark returned -0.45% in June, as weakness in technology-related markets outweighed strength in UK equities and selected international markets.

Inflation and Interest Rates.

UK.

The Bank of England left Bank Rate unchanged at 3.75% in July 2026, with the Monetary Policy Committee voting 6-3 to hold rates. Policymakers cited uncertainty from higher and volatile global energy prices, driven by conflict in the Middle East, while noting that underlying domestic inflation pressures continue to ease.

UK CPI inflation fell to 2.60% in June, down from higher levels earlier in the year and closer to the Bank's 2.00% target. However, the Bank warned inflation is likely to rise later in 2026 as elevated energy costs feed through to consumer prices, leaving inflation risks tilted to the upside.

U.S. Federal Reserve.

In July 2026, the Federal Reserve kept the federal funds rate unchanged at 3.50% to 3.75%, reflecting concern that inflation remained above its 2.00% target despite some softer economic data. The decision was notable for three dissenting policymakers who favoured an immediate rate hike, highlighting growing concern about persistent price pressures.

On inflation, June CPI data released in July showed headline inflation eased to 3.50% year-on-year from 4.20% in May, while core CPI moderated to 2.60%, helped by a temporary decline in energy prices. However, renewed rises in oil prices and Middle East tensions kept inflation risks elevated and reinforced expectations that further Fed tightening may still be required.

European Central Bank (ECB).

In July 2026, the European Central Bank (ECB) left its key interest rates unchanged, keeping the deposit rate at 2.25%, while signalling that persistent energy-price pressures could warrant further tightening later in the year. ECB President Christine Lagarde highlighted uncertainty stemming from Middle East-related energy shocks and stressed a data-dependent approach.

Meanwhile, euro area inflation edged higher, rising to 2.90% in July from 2.80% in June, driven largely by higher oil prices. Core inflation also accelerated to 2.50%, suggesting underlying price pressures remained resilient despite earlier signs of disinflation.

Market performance.

Developed markets.

Developed markets delivered a mixed picture in July 2026. Norway (+9.97%) led performance as soaring oil prices, with Brent crude rising sharply during the month, boosted energy stocks. Hong Kong (+9.34%) and Singapore (+8.81%) benefited from strong investor inflows, technology strength and resilient financial sectors.

In contrast, Finland (-10.70%), Belgium (-6.33%) and the US (-3.19%) lagged amid pressure on technology shares, trade policy uncertainty and weaker sentiment towards cyclical sectors.

Overall, commodity-linked and Asian markets outperformed, while several European markets and the US struggled.

Emerging Markets.

Emerging markets were led by Colombia (+18.46%), Indonesia (+9.65%) and China (+7.50%) in July 2026, supported by improving investor sentiment, strong commodity markets and optimism around economic growth and manufacturing activity.

Conversely, Korea (-18.25%) was the weakest market as a sharp sell-off in semiconductor stocks and the unwinding of leveraged AI-related trades triggered one of the steepest declines in KOSPI history. Taiwan (-6.69%) also struggled amid broader weakness across the Asian technology sector.

Sector performance.

Sector performance in July 2026 was led by UK-focused strategies, with UK Equity Income (+4.10%), UK All Companies (+3.82%) and UK Smaller Companies (+3.68%) benefiting from improving sentiment towards domestically focused stocks and attractive valuations. Latin America (+1.89%) also performed well, supported by strong returns in markets such as Colombia and strength in commodity-related sectors.

Technology & Technology Innovation (-9.22%) was the weakest sector, reflecting a sharp global sell-off in semiconductor and AI-related stocks, particularly across Asia. Asia Pacific and Emerging Market strategies also lagged as weakness in Korea and Taiwan more than offset gains elsewhere.

Source: FE FundInfo, 06/08/26

Summary.

Markets experienced a more mixed month in July as investors balanced resilient economic activity against renewed inflation concerns. Rising energy prices, driven in part by Middle East tensions, added pressure to inflation across major economies and complicated the outlook for central banks.

The Federal Reserve and Bank of England left interest rates unchanged, while despite holding, the European Central Bank signalled that further policy tightening could still be required if inflation remains elevated. As a result, expectations for interest rate cuts continued to be pushed back, reinforcing the prospect of a higher-for-longer interest rate environment.

Market leadership also shifted during the month. Commodity-linked markets benefited from higher oil prices, with Norway among the strongest performers, while Hong Kong and Singapore gained from robust investor demand and resilient domestic sectors. In emerging markets, Colombia, Indonesia, China, and Poland delivered strong returns, supported by improving sentiment and favourable economic trends.

At the same time, some of the market's previous leaders came under pressure. Semiconductor and AI-related stocks experienced a sharp sell-off, weighing heavily on Korea, Taiwan, and technology-focused investment strategies. In contrast, UK equities performed strongly across income, all-company, and smaller-company sectors, suggesting investors are increasingly finding opportunities beyond the large technology names that have dominated market returns in recent years.

While long-term themes such as artificial intelligence continue to provide support for equity markets, investors are navigating a more balanced environment. Persistent inflation, restrictive monetary policy, and geopolitical uncertainty remain key risks. Against this backdrop, maintaining diversification across regions, sectors, and asset classes remains important to capturing opportunities while helping manage portfolio volatility.

Sources.

The ‘Balanced portfolio benchmark’ is the UT Mixed Investment 20-60% Shares Sector.

Bank of England Monetary Policy Report (30 July 2026)

Bank of England Leaves Rates Steady, More Officials Back a Hike – By Reuters Staff, Reuters, 30 July 2026

Bank Rate Maintained at 3.75%: July 2026 Monetary Policy Summary and Minutes – Bank of England, 30 July 2026.

Monetary Policy Report, July 2026 – Bank of England, 30 July 2026

Traders Expect Fed to Skip July Rate Hike as Inflation Cools – By Ann Saphir, Reuters, 14 July 2026.

Fed to Hold Rates This Year Despite High Inflation, but Economists Cite High Chances of a Hike: Reuters Poll – By Indradip Ghosh, Reuters, 21 July 2026.

Wall Street Closes Down Sharply After Fed Holds Rates Unchanged – By Noel Randewich, Reuters, 29 July 2026.

ECB Keeps Rates Unchanged but September Hike Firmly in Play – By Balazs Koranyi and Francesco Canepa, Reuters, 23 July 2026.

Euro Zone Inflation Ticks Up in July, Bolstering Rate Hike Case – By Balazs Koranyi, Reuters, 31 July 2026.

Monetary Policy Decisions – European Central Bank, 23 July 2026.

Reuters, Oil prices settle more than 1% higher, log strongest month since March, Siddharth Cavale, 31 July 2026.

Reuters, USTR's Greer says Trump's latest tariffs won't have an economic impact, David Lawder, 27 July 2026.

Reuters, South Korea's KOSPI posts biggest fall since early March as chipmakers slump, Reuters Staff, 28 July 2026.

Reuters, South Korea $2 trillion stock rout breaks records as SK Hynix results disappoint, Gregor Stuart Hunter, Rae Wee and Jihoon Lee, 29 July 2026.

Modern Diplomacy, China Stocks Gain on Strong Factory Data and Xi Growth Pledge, Sana Khan, 1 July 2026.

Trading Economics, Colombia Stock Market (IGBC/COLCAP) - Quote, Chart, Historical Data & News, accessed 6 August 2026.

Vietfund Asia, Hong Kong Stocks Strong Rebound: Southbound Funds Surge in July 2026, Investment Logic Upgraded, 28 July 2026.

Growbeansprout, DBS, OCBC and UOB hit record highs in July 2026. What could drive them higher beyond dividends, Gerald Wong, CFA, 9 July 2026.

Tradingeconomics.com, July 2026 https://www.istockphoto.com/