Mutual funds: monthly reports

CIO Report – July 2026

Markets

The month of July was shaped by higher energy prices, persistent inflation and a correction in the AI segment. Geopolitical tensions in the Middle East escalated once again, temporarily driving the price of Brent crude above USD 100 per barrel, while core inflation, as measured by the PCE price index, remained elevated at around 3.3% year-on-year. Against this backdrop, the US Federal Reserve left its policy rate corridor unchanged at 3.50–3.75%. Fed Chair Kevin Warsh's rather non-committal communication on the monetary policy reaction function led to a marked steepening of the US yield curve: the yield on 30-year Treasuries reached 5.27%, its highest level since 2007, while the yield on 10-year German Bunds rose to 3.20%. The picture across the main asset classes was mixed. In equity markets, AI and semiconductor stocks in particular came under pressure: the Nasdaq and several Asian markets lost ground, while European equities fared better. At the same time, the equal-weighted S&P 500 Index showed that market breadth improved, with capital rotating into sectors less dependent on technology. Corporate and government bonds posted negative total returns overall as yields rose globally, though high-yield bonds held up comparatively well thanks to their shorter duration. In currency markets, the US dollar lost ground, particularly after the Fed's rate decision, while the yen rallied sharply following a suspected coordinated intervention. In commodities, rising agricultural prices joined oil in shaping the picture, while gold edged higher and silver fell back again.

Outlook

The global economy remains resilient, continuing to benefit from the shift of financial market liquidity into the real economy, underpinned by large fiscal deficits and the AI investment boom. The world economy has so far weathered the recent oil price shock reasonably well, but the renewed tensions in the Middle East show that this headwind is not yet behind us. At the same time, inflation remains persistent, while the major central banks are pursuing an increasingly restrictive stance. Given a solid economy with no clear signs of overheating, the Fed can afford to hold steady for now; however, Kevin Warsh's vague communication and the market reaction that followed could increase pressure on the Fed to raise its policy rate later this year. Higher real yields, a rising term premium and a deteriorating US fiscal outlook continue to argue for caution on government bonds. In equity markets, the broader uptrends remain intact, though we believe a gradual reduction in risk exposure is warranted in this environment. Convertible bonds offer an attractive way to keep participating in rising equity markets while cushioning downside risk. Corporate bonds remain attractive relative to government bonds; highly rated AI-related bonds open up additional opportunities, though given the sharp rise in capital expenditure, selective security selection remains crucial. We view gold as neutral in the short term but constructive over the medium term, supported by central bank demand and a possible recovery in Chinese liquidity.