The rally of global equity markets continued in July – the MSCI World Index gained 3.3% during the month (in USD) and is already up more than 19% year-to-date. Driving force continues to be the investors’ optimism that inflation can be tamed without considerable further interest rate hikes or a significant decline in economic activity.  The gains were distributed remarkably broadly, with 45 of 46 major markets (only Egypt declinded -0.6%) finishing in positive territory for the month. In contrast to much of the year so far, in July emerging markets outperformed developed market equities - the MSCI Emerging Markets Index added 6.3% for the period. Overall gains were supported mainly by lower inflation data in several developed markets, most importantly the US.  However, despite these results, core inflation in most developed markets (that, stripped of the volatile food and energy prices) remains well above central banks targets of 2%, buoyed by wage increases and full employment pressures. The equity rally was also fueled by the ongoing reporting season for the second-quarter corporate earnings, which turned out to be “better than feared”. Commodities also had a good month. The oil price rallied, despite the dropping natural gas price in Europe, where storage inventories reached seasonal highs. Russia’s cancellation of the Black Sea grain export deal contributed to price rises in certain agricultural commodities – overall, the broad Bloomberg Commodity Index jumped 6.3% in July. On the fixed income front, corporate credit outperformed governments bonds.  Long-term interest rates edged higher for a second straight month across the globe, but the yield curve remained inverted in most developed markets (inverted yield curve is generally considered a precursor to economic recession).
    US equities went up in July, with economic data revealing resilient growth and falling inflation. The US economy expanded at an annualised 2.4% quarter-on-quarter (q/q) in Q2, above economists’ expectations of a 1.8% expansion. This continued growth comes despite another 25-basis-point (a quarter percentage) rate increase by the Federal Reserve (Fed) in July as an attempt to deliver a “soft landing”. The central bank offered no definite guidance on whether rates would rise further in September, and emphasized the data-dependency of the next decision. Currently markets expect this last rise to be the peak for the current interest rise cycle. Thus, investor appetite for risk dominated again as high-beta and more volatile stocks outperformed for a third straight month. The S&P500 index rose 3.1% in the month (taking year to date return to over 20%).  Energy stocks advanced on expectations of tighter supply and the positive economic growth data. Certain media and technology giants made strong gains, as did a number of banking stocks, capitalizing on the high-interst rate environment that brought more interest income. Healthcare, utilities, and consumer staples lagged behind, although no sector posted negative returns overall for the month. 
    As the 2Q’23 earnings season draws to a close, with over three-quarters of the S&P500 companies having reported at month’s end, the results were not disappointing – more than 70% of companies have beaten earnings estimates despite weaker revenues. In the face of input cost inflation, companies had been raising prices in an effort to pass along these costs and stop margins erosion – with earnings expected to be about 6% softer than a year ago, the share of companies to beat net income expectations is slightly higher than recent average levels.
    The June CPI, arriving in the middle of July, was the most anticipated piece of data, moved markets when headline inflation fell more than expected to 3% year on year (from 4% previous month). While core inflation remained stickier at 4.8% year on year, but Fed’s favourite measure – core services excluding housing – slowed to just below 4% year on year. This is still double the central bank’s target of 2%, fueling speculation that the higher interest rates are here to stay for longer than investors were expecting.
The strong GDP data returned the appetite for risk among investors, and this hurt the performance of the US government bonds. Yields at the shorter end of the yield curve (i.e. securities that will mature sooner) trended lower due to clearer signs that central banks may be slowing down interest rate hikes, meaning that their prices rose (prices and yields of bonds move in different directions). On the contrary, yields at the long end rose – the US 10-year bond yield continued to trend upward, increasing to 3,95%. With the 2-year bond yield remaining around 4,8%, the yield curve kept its inversion. The renewed appetite for risk meant that within this asset class, investment grade corporate credit and high yield bonds generated positive returns and outperformed government bonds over the month. 
     European equity markets also advanced in July, supported by falls in inflation and positive economic growth data. They showed that Eurozone GDP grew by 0.3% q/q in Q2, but forward-looking data published in July pointed to a slowing economy. The Eurozone purchasing managers’ index (PMI) for July fell to an eight-month low of 48.9, with manufacturing activity being particularly weak (a reading below 50 implies contraction, and above 50 – expansion). The European Central Bank raised interest rates by 25 basis points (quarter percent) in July. However, investors anticipate that ECB might be approaching the end of its rate-hiking cycle as inflationary pressures are falling. Euro-area annual inflation for July was estimated at 5.3%, down from 5.5% in the previous month. The Q2 earnings season also began in July. Similarly to America, earnings have generally proved resilient. Some food & beverage companies emphasised weaker volumes as consumers back away from higher prices; European bank earnings also revealed the benefits of higher interest rates. On the stock markets, top gaining sectors included real estate, energy and materials, while laggards were consumer staples, information technology and utilities. UK equities also rose – but two different tendencies could be noticed there: domestically focused companies were lifted by the investors’ expectations that the Bank of England is done its aggressive interest rate hikes; and internationally focused companies dealing with basic materials and energy grew in line with the increasing commodity prices. 
     European government bonds lost some ground as second-quarter GDP data was relatively strong. Germany's 10-year Bund yield continued to rise to 2.47%, while the two-year dropped back to 3.21%. French, Italian, British and Spanish 10-year bond yields all increased as well, while the 2-year yields decreased, keeping the yield curve inversion everywhere.
     July was a strong month also for the Bulgarian stock market. The two main stock indices ended the month with decent gains: the flagship SOFIX added 2.6% to its value and the broad BGBX40 – 1.9%. During the month, trading started with the first bonds issued on the "junior" Beam market of the BSE – those of the financial house LOGOS-TM, as well as the shares of the non-banking credit institution Ipotech Sofcom AD.  Since the start of the year SOFIX has risen by more than 14% and is one of the best performing indices in Europe. For the month, among the Bulgarian companies in the index, the best performer was the technology company Shelly Group AD (recently renamed from Allterco AD), whose price rose by nearly 17%, and the worst – the financial holding Eurohold Bulgaria AD, whose share fell by more than 5%.