August monthly investment update - Reflections on July 2026

July was the month where 'diplomacy' was playing an important role in discussions around some of the bigger geopolitical issues facing the world today.

Geopolitics, as we know, has a direct impact on investment markets and the global economy. It is, therefore, in the interests of governments worldwide, to support vital peace talks between warring nations. Current events have shown us how quickly conflict can spread beyond borders - threatening stability, security, and economic interests, that could affect us all.

Diplomacy in action

In late July, the US supported Russia/Ukraine peace negotiations by entering into discussions with Ukraine about a proposal for an air ceasefire – something, it is hoped, Russian officials will ponder over. President Trump also met President Zelensky in Washington during the month, where they discussed US technology to help reinforce Ukraine air defences.

On the US/Iran war, some form of diplomacy did still exist in July between the two countries, despite further military clashes on both sides, but it hasn’t been without its challenges.

The US launched strikes on Iranian military targets during the month following reports that Iran had hit neighbouring countries hosting US military bases — echoing our earlier point about conflict spreading beyond borders. The fragile peace agreement — widely referred to as the Memorandum of Understanding - remains under severe strain and not currently in effect.

As the month came to an end, tensions between the US and Iran were undoubtedly high. Despite this, peace talks did continue. President Trump was reported saying he was happy to give more room for 'diplomacy' during temporary pauses in air strikes in Iran - welcome news for investment markets. The price of crude oil fell sharply at the time (from $100 a barrel to around $85) and stock markets rallied.

Peace talks, of course, may not be possible without the support of mediators. So far this year, Pakistan, Qatar, Egypt and Turkey have all been amongst those countries who have helped in these discussions. Eager to see an end to the conflict affecting trade in the Red Sea, it has also been reported that China is in support of Pakistan, and others, who are mediating to bring an end to it.

Investment markets were wise to the fact that no comprehensive peace deal was yet in place (at least not at the end of July). Disputes over the opening of the Strait of Hormuz and Iran’s nuclear programme - the major flashpoints of the conflict – could though, take longer to resolve.

Efforts to improve China/US divisions

The two largest economies in the world met in July for high-level talks: Chinese Foreign Minister Wang Yi met US Secretary of State Marco Rubio in the Philippines, ahead of a diplomatic gathering of 11 Southeast Asian diplomats (and major partners), to discuss inflation and global growth.

The prior meeting between Wang Yi and Marc Rubio was, however, not to discuss a crisis, nor a new agreement, but rather was another show of 'diplomacy', to focus on a second state visit of President Xi to the US to meet with President Trump. Although tensions remain between the two nations, investors welcomed the 'open' dialogue.

In our view, it is far better for investment markets to see such shows of 'managed' competition between these two superpowers, as it helps reduce trade disruption and improve expectations for global growth. All eyes are now on that proposed state visit to Washington in the autumn.

Global economic view

Staying with China for a while longer, it saw its economic picture weaken in July - highlighting ongoing fragility in domestic demand. This was despite stronger-than-expected export growth (more than likely connected to AI, mentioned later) and solid industrial production in recent months. It raises alarm bells with investors, though, that the country’s recovery remains heavily dependent on exports. It might also be one of the reasons for a willingness, by China, to have 'open' dialogue with the US on trade (as mentioned earlier).

Talking of the US, economic growth in the States continued to moderate in recent months, albeit remained resilient. Meanwhile, the latest inflation readings (June headline inflation eased to 3.5%, and core inflation to 2.6%) were less alarming than feared for the Federal Reserve (Fed). At the July meeting, the Fed left interest rates unchanged, but the room was split: Nine members voted to keep rates where they were; and three voted to raise them. Central Bank Chief, Kevin Warsh is now under pressure to come good on his commitment to bring inflation back down to the 2% target.

Over in Europe, the Eurozone produced one of the month’s more positive outcomes – the initial estimate for quarter two GDP growth delivered 0.4% - beating expectations. Germany, the biggest economy in the region, returned to modest growth, whilst Spain continued to outperform.

However, core inflation in Europe was on the rise again (for the month of July it was 2.5%), causing the European Central Bank to think hard before deciding to leave interest rates unchanged – a warning to investors that European inflation looks to be stabilising above the bank’s 2% target, for now.

Here in the UK, Andy Burham was sworn in as the new Prime Minister. Despite all the political turmoil, domestic markets were largely undisturbed by the news. Mr Burnham was, no doubt, pleased to see that the UK economy showed signs of resilience (according to recent figures released in July). They showed retail sales, consumer confidence, and PMI surveys (monthly economic indicators) all improved.

CPI headline inflation (such as food, drink and household services) was 2.6% for June (a drop from 2.8% in May). The slight fall could be attributed to lower fuel prices, at the time, likely to only be temporary due to the ongoing Middle East conflict.

Fixed income markets came under pressure during the month as higher energy prices (in July) prompted investors to reassess the outlook for inflation and interest rates. With concerns growing that central banks may keep interest rates higher for longer, UK gilts (government bonds) suffered another difficult month as the broad gilt index returned -1.5%, and longer-dated gilt returns tumbled 3.6% – creating a challenging environment for bonds.

There are always going to be winners and losers in markets, and, in July, oil was a standout gainer - a consequence of the tighter supply for the commodity caused by the ongoing disruption in the Strait of Hormuz. Brent crude oil surged 24%, finishing July at $90 per barrel - meaning oil prices, overall, have surged almost 50% year-to-date.

AI fears creep back into markets

Looking across global investment markets in July, there were signs of increasing caution as valuations for technology stocks came under renewed scrutiny — a concern we have highlighted before.

To be clear, the concern by investors around AI stocks, isn’t that AI will fail. It is more a fear that they became too optimistic, too fast, in their overpriced valuations. Not to mention the vast amount of money invested so far into the industry (investment in data centres alone, for example, could be over $800bn this year, and could even go to $1 trillion in 2027).

Then, there is the issue of China and the US, and the battle to determine which one of these super-powers will control the lion’s share of important future AI technologies (such as AI chips and semiconductors). It’s still unclear who will be the victor.

With inflation still very much a concern, and oil prices still elevated, investors in both equities and fixed income have a lot to navigate. Against this backdrop, it may take more than just 'diplomacy' to help global investment markets move through this latest period of uncertainty, despite stock markets currently riding high.