The Monthly Review

Twenty-one points between best and worst

July’s dispersion did the work that direction did not. The Hang Seng led at +13.5%, its strongest month in well over a year, followed by the FTSE 100 at 3.6%, the JSE All Share at 1.2% and the Swiss Market at 1.1%. The EURO STOXX 50 managed 0.6% and the MSCI ACWI 0.1%. At the other end, the S&P 500 was flat at −0.1%, the NASDAQ fell 3.2%, and the Nikkei 225 lost 8.1%, the only large decline of the month. Year to date the developed-market indices sit in a tight band around 9.5% to 12.3%, the Nikkei is ahead at 25.2%, and the JSE is the sole negative at −1.8%. Over twelve months the spread is wider still: the Nikkei is up 59.4% in yen, the developed indices cluster between 19.5% and 24.9%, and the Hang Seng trails at 7.7% even after July’s rally.

Last month’s winner, this month’s loser

Ranked by monthly return, the two ends of the table swapped places. June’s strongest index was the Nikkei 225 at +5.7%; in July it was the weakest at −8.1%. June’s weakest was the Hang Seng at −8.5%; in July it was the strongest at +13.5%. Seven other indices shifted by one or two places between them. This is the kind of pattern that invites a client to act, and the arithmetic of acting is unforgiving: a switch made at the end of June, into June’s winner and out of June’s loser, exchanged +13.5% for −8.1%, a round trip of 21.6 percentage points inside a single month.

The two moves were not independent coincidences that happened to mirror each other. They were one rotation observed from both ends. Global investors moved out of Japan’s semiconductor-heavy, yen-carry-exposed market and into Hong Kong’s China technology and financials complex, which had lagged in June and offered the less crowded entry point. Read that way, June and July are a single event, not two.

Japan’s decline came in two legs, both driven by semiconductors. The index fell 2.8% and 4.0% on 16 and 17 July in a broad Asian technology rout, another 2.7% on 24 July as investors questioned the durability of AI capital spending, and 4.0% on 28 July as the MSCI Asia Pacific Index reached a 10% drawdown from its 22 June peak. Currency then compounded it. Hedge funds held their most bearish yen positioning since 2007, close to 138,000 net short contracts at the end of June, and the yen touched a 40-year low near 163 on 21 July. The unwind, when it came, was abrupt: the yen surged more than 2.6% intraday on 30 July, followed by intervention of around ¥8.45 trillion on 31 July. The Bank of Japan held at 1.00% in an 8 to 1 vote and the Nikkei rebounded 4.0% on the final day.

Hong Kong’s gain was front-loaded into the first three weeks. Alibaba rose 13% on 8 July, its largest single-day move in ten months; SMIC gained as much as 13% as President Xi pressed the case for technology self-reliance; and a five-year consumption plan targeting ¥60 trillion in retail sales by 2030 lifted retailers. Leadership then handed off inside the index, with the Hang Seng finance sub-gauge up roughly 11% for its best month in nearly two years as enthusiasm for technology faded. Margin loans in mainland China fell more than 10% from their late-June record, which investors read as froth clearing rather than stress.

Our reading, rather than a finding in the data, is that the crowding which produced June’s gain is part of what made July’s reversal so sharp: the one-sided positioning that carried the Nikkei to the top of the table in June is what unwound in July. Two points remain contested in Bloomberg’s own account, and we would not present either as settled: whether Hong Kong’s advance was driven primarily by domestic policy or by global rotation, and whether the Nikkei’s rebound on 31 July reflected relief at the Bank of Japan’s hold or simply a technical bounce from oversold levels.

Prepared beats predicted.

Two true numbers, one holding

The JSE All Share returned 1.2% in July. It is down 1.8% for the calendar year and up 17.2% over twelve months. Those are three accurate descriptions of the same holding on the same day, and the only thing separating the second from the third is where you start counting. The calendar year is a convention, not a verdict, and a client looking at a negative year-to-date figure while reading that global markets are near highs is comparing a start date, not an investment.

The local month itself was not calm. The Reserve Bank held the repo rate at 7.00% on 23 July in a 4 to 2 split, against a consensus in which 17 of 20 surveyed economists expected a 25 basis point increase. The rand fell more than 2% in a single session to around 16.73 to the dollar, its weakest since early May, traded a 16.20 to 16.84 range across the month and closed at 16.53, some 0.86% weaker. June inflation, released on 22 July, came in at 5.0% year on year, above the 4.7% consensus and well above the 3% target midpoint, with transport costs up 12.7%. Deutsche Bank argued the hold undermined policy credibility and raised the prospect of a September increase.

And yet the index rose, with resources and financials carrying it. The JSE was June’s second-weakest index and July’s third-strongest, which means it rotated too. For a South African portfolio the lesson is the same one the global tape taught: the local news flow and the local return pointed in different directions, and the month rewarded holding a position rather than reacting to a headline.

Signals beneath the noise

Signals rarely shout. Noise usually does.

Credit

Public credit did not react. US five-year CDS eased from 72.5 to 70.5 and European CDS edged up from 54.4 to 55.7, both moves small enough to count as noise. Both measures remain far below their March highs of 92.1 and 77.7, and the European measure sits near the low end of its recent range. For a month containing an energy shock, a record currency intervention and an active Middle East conflict, the absence of any credit response is itself the observation.

Volatility

Near-term volatility fell in six of the nine indices, and fell hardest where June’s swings had been worst: the S&P 500 from 17.7 to 12.2 and the NASDAQ from 28.2 to 19.9, with the JSE easing from 19.6 to 12.7 and the MSCI ACWI from 15.6 to 12.0. The Nikkei came down from 39.4 to 35.6 and remains comfortably the most volatile index on both horizons, while the Hang Seng eased to 18.7 even as it rose 13.5%. The only three indices where 30-day volatility increased were the European ones: the FTSE 100 to 11.1, the EURO STOXX 50 to 14.5 and the Swiss Market to 11.1, all from low bases. So the market’s risk gauges were quietening while its headlines were at their loudest.

Rates and policy

Every central bank we track held in July. The Federal Reserve stayed at 3.50% to 3.75% in a 9 to 3 vote, with all three dissenters preferring an increase; the European Central Bank held its deposit rate at 2.25% unanimously, though an immediate rise was discussed; the Bank of England held at 3.75%; the Bank of Japan held at 1.00% in an 8 to 1 vote; and the Reserve Bank held at 7.00% in a 4 to 2 split. Four of the five holds carried either a dissenting vote or explicit signalling that a rise remains likely. US inflation for June, released on 14 July, was 3.5% year on year. A synchronised pause, then, but not a settled one.