The month of July 2026 was marked by the end of negotiations and the resumption of hostilities between Iran and the United States. As a result, the Brent barrel rose sharply in the first part of the month, reaching $100, before slightly declining at the very end of the month to $89. Ultimately, its increase was 22% over the month, the strongest rise since March.
The uneven movement of inflation indices reflects the volatility of oil prices. In the United States, overall inflation surprised significantly to the downside for June, at 3.5%, partly thanks to the drop in energy prices that month but also due to a clear and widespread decrease in underlying inflation. Conversely, inflation surprised to the upside in the eurozone in July, at 2.9%, due to the rebound in oil prices.
Overall, activity surveys are consistent with a moderate growth pace. In the eurozone, the composite PMI rose from 50 to 51.9, thanks to an improvement in industry but especially in services, thus returning to its highest level since the outbreak of the war in Iran. Moreover, GDP growth in Q2 came out at +0.4% quarter-on-quarter. In the United States, both the ISM manufacturing and services surveys slightly declined in June (to 53.4 and 54, respectively) but remain consistent with a growth rate of about 2%. The June employment report was not good and cast doubt on the previous three reports, which had been significantly better than expected. In particular, the private sector excluding healthcare returned to job losses. In Japan, PMI surveys remain well oriented with 54.7 for manufacturing and 51.9 for services. China, on the other hand, continues to stand out, and the deterioration in the economic situation worsened over the month, with the composite PMI falling to its lowest level since 2022.
Several major central banks held their monetary policy committees in July, but none decided to change their interest rate policy. The ECB left its deposit rate unchanged at 2.25% but opened the door to a hike in September, in response to renewed tensions in energy prices. The Bank of Japan kept its main policy rate at 1% but was quite aggressive about a forthcoming tightening. For its part, the Fed did not change its policy rates but was satisfied with the rise in bond yields since the previous committee, in direct reaction to economic developments. Above all, it confirmed a radical change in its communication regime: it will provide significantly fewer indications than in the past. This also implies a change of regime for the bond market.
In July, equity markets moved in a scattered fashion. The S&P 500 ended the month at roughly the same level (-0.1%), with a clear underperformance in the technology sector, while the Eurostoxx 600 rose by 1.2%. The decline in the Nikkei was more significant (-8.1% for the month), due to the overall underperformance of the technology sector. The MSCI Emerging lost 3.3% over the month.
Bond yields rose sharply over the month, largely due to the rebound in oil prices. Ultimately, the US and German 10-year rates climbed by about 30 bps over the month, ending at 4.71% and 3.17%, respectively. In Japan, long-term rates increased slightly, with the 10-year rate ending the month at 2.75%. In Europe, credit spreads remained roughly unchanged over the month, staying below the levels that prevailed before the war in Iran. The price of gold also ended the month almost unchanged.
During the month, we gradually increased the portfolio's equity exposure, which stood at 88.2% at the end of July, up about 4 points over the month, while maintaining a diversified geographic allocation. The increases mainly focused on North America and, to a lesser extent, the eurozone, in a context of correction in several market segments that we continue to consider promising in the medium term. We notably tactically reintroduced exposure to semiconductors and the Nasdaq after their sharp decline, while simultaneously increasing exposure to the MSCI World. However, the portfolio maintains a slightly lower US exposure than its benchmark index, at 59.4% versus 61.5%, while the eurozone remains overweight at 9.8% versus 6.6%. This allocation remains consistent with the diversification carried out over recent months, notably in favor of broader and less concentrated European exposure.
The month's performance was mainly penalized by the correction in technology markets: US and global equity pockets contributed about -0.61 point and -0.58 point, respectively, while thematic exposure, mainly affected by the decline in semiconductors, subtracted about -0.41 point. Japan and emerging markets also weighed on performance, notably with the sharp drop in the Nikkei and Asian equities. Conversely, European equities made a positive contribution of about +0.18 point, benefiting from the better performance of European markets and sector rotation in favor of Value segments. On the bond side, we maintained low sensitivity, at 1.94, almost unchanged over the month, in an environment of rising sovereign yields. Thus, we continue to favor carry and a contained duration rather than significant directional risk-taking on rates.
In the short term, we maintain a relatively constructive but more selective view of risky assets. Growth remains resilient in the main developed economies, but the rebound in oil increases uncertainty around the disinflation trajectory and limits visibility on the evolution of monetary policies. In equities, we favor a diversified exposure less concentrated on large US technology stocks, with continued interest in Europe, Value, healthcare, and a more balanced approach to the US market. The correction in semiconductors does not call into question the structural trends linked to artificial intelligence, but reinforces the need to be more selective given valuation levels and the investments required to generate expected profits. In bond markets, we maintain controlled duration and continue to favor credit carry, as sovereign yields could remain volatile. Finally, we remain measured on gold and attentive to the evolution of oil, geopolitical tensions, and upcoming central bank communications.