Strong summer stock exchanges

For the month as a whole, the American S&P 500 Index rose by 3.7 per cent measured in USD, while the European Stoxx 600 Index climbed 3.2 per cent measured in EUR and the Nordic VINX Index ended the month up 4.2 per cent measured in NOK.

Results and monetary policy

The upturn in July was primarily triggered by the USA's strong results season and China's monetary policy. The Chinese authorities have reduced the banks' reserve requirement twice this year and another two reductions are expected by the end of the year. In addition, some tax cuts and increased state support for infrastructure investments have been announced. In total, these are nonetheless relatively minor measures and in practice a reversal of the restrictions imposed in the first half-year.

Good underlying factors

The macro picture is still good. Good growth, a favourable earnings picture, low inflation and low interest rates mean there is still a favourable climate for shares. However, the upturn appears to be a bit less synchronised than before. The USA remains strong, but emerging economies are slightly weaker.

Trade war and Brexit

A lot of attention is being paid to the simmering trade war between the USA and China. This is perhaps not so strange, since the USA and China together account for 40 per cent of the world's GDP. In the worst case, a trade war may reduce the growth in the global economy by almost 1.4 percentage points. Although it is most likely that the parties will reach agreement, investors are nevertheless concerned.

In the UK, several high-profile ministers left the government in July, including Foreign Secretary Boris Johnson. Strong polarisation is making a Brexit-light solution difficult. The border between Ireland and Northern Ireland is a particular problem. When Brexit takes place, this border will have to be closed and border controls will have to be introduced. At the same time, large international banks are preparing to move a lot of their European activities out of the country, to either Paris or Frankfurt.

The road ahead ...

Despite the trade war and Brexit, the companies' second-quarter reports show an overall sound earnings picture. This is expected to continue in the third quarter and means that the stock market still appears to be the best place in which to invest.

"It is easy to make promises - it is hard work to keep them"
Boris Johnson