Market Update - Month Overview (July 2025)

Summarised by Shara Cox (Report via Zenith)

Australian Market Summary

The Australian share market delivered a strong result in July, rising 2.4% and bringing the year-to-date gain to 9%, which places it slightly ahead of unhedged global equities. The banks weakened, led by Commonwealth Bank falling back from record highs, but this was balanced by strength in miners and CSL. Mid-cap stocks outperformed large caps as investors rotated away from expensive banks towards companies seen as better positioned to benefit from the expected interest rate easing cycle.

The Reserve Bank surprised markets by holding rates steady in July, but recent inflation and employment data support expectations that cuts are coming. Markets now anticipate at least two reductions by year-end, with the cash rate forecast to fall to 3.1% by early 2026. The prospect of lower rates has supported a recovery in house prices and dwelling approvals, while business conditions also lifted in June. Despite these positives, earnings growth expectations remain modest, with consensus pointing to only low single-digit growth over the next year, leaving valuations stretched. Property performed well, with Australian REITs up 3.2% in July and almost 10% for the year. In fixed interest, 10-year bond yields ended the month at 4.29%, steady in the face of US pressures, as signs of easing inflation strengthened confidence in an imminent policy shift.

International Market Summary:

Global markets also advanced in July, supported by strong US corporate earnings, particularly from mega-cap and AI-related technology stocks. The MSCI World ex-Australia index gained 1.3% in US dollar terms, or 3.1% when translated into Australian dollars, with the S&P 500 and Nasdaq reaching new highs. Overall, US earnings for the June quarter are now expected to be more than 10% higher than a year ago. While the US market rose 2.3% for the month, Europe and Japan declined, though Europe remains the standout performer so far this year with a 21% gain, led by Germany.

The US Federal Reserve left rates unchanged at 4.25–4.5%, resisting political pressure to cut despite signs of a slowing economy. Subsequent jobs data showed clear weakness, with July payroll growth well below expectations and prior months revised sharply lower. In Europe, the ECB also kept rates steady at 2% following several earlier cuts, citing uncertainty around tariffs and growth. Emerging markets outperformed developed markets, rising 3.8% in Australian dollar terms and 13% for the year to date, with China, Korea and Taiwan driving gains, while India fell due to currency weakness and trade concerns.

Other sectors were mixed. Global REITs eased slightly while infrastructure assets gained modestly, supported by ongoing inflation concerns. In commodities, oil rose on Russian supply risks, gold steadied but remains more than 25% higher this year, iron ore gained almost 5% on hopes of Chinese stimulus, and copper fell amid tariff volatility. The US dollar strengthened after months of decline, while the Australian dollar slipped to US64.3 cents, weighed down by expectations of RBA easing and uncertainty over global growth.