Monthly house view | July 2025

Context

After the war comes the crunch. The 12-day Israel-Iran war has blown over for now, and given way to cooling oil prices and a momentum in equities that has driven leading stock indices to record highs. Now investors face a summer of key deals, deadlines and data that will determine whether markets can march higher, or not. In the Middle East, the pressing question is whether the fragile ceasefire between Israel and Iran can hold. Conflicting reports on the extent of damage to Iran’s nuclear sites from US strikes leave scope for escalation. The truce has held so far under intense US pressure. the trade policy front, a 90-day pause on “Liberation Day” tariffs ends on 9 July. If no deals are reached by then, the US could re-impose “reciprocal” tariffs on numerous countries, putting a drag on global growth. That said, the US may grant extensions, and President Trump’s Secretary of Commerce has said he is optimistic about reaching a deal with the European Union. Markets are downplaying the risk from tariffs.

From mid-July, US companies will start reporting second-quarter earnings. These results, and updated forward guidance, will provide a crucial insight into the resilience of the US economy to the disruption from trade tariffs. Some economic indicators in the US are starting to flash red. The Federal Reserve is waiting to “to learn more about the likely course of the economy before considering any adjustments to our policy stance,” in the words of Fed Chair Jerome Powell. He has so far resisted intense lobbying from Trump to cut interest rates. Meanwhile, on the fiscal policy front, the US is moving ahead with the One Big Beautiful Bill Act (OBBBA). Revenue from trade tariffs may be just enough to cover the 10-year cost of the budget reconciliation bill, though it may fall short. In Europe, Germany’s new fiscal package is going live, ramping up defence and infrastructure investment in a major policy pivot.

Tech optionality

Given the uncertainty around US policy and yield levels, we remain cautious on US equities. However, we see merit in retaining optionality on US technology stocks given their earnings resilience and upbeat outlooks. US technology earnings are beneficiaries of USD weakness and the least sensitive to higher interest rates.In the euro area, slowing inflation has given the European Central Bank (ECB) scope to cut interest rates. This increases the appeal of Euro Investment Grade bonds. We also believe that lower interest rates are likely to support European private equity real estate. We favour European equities over US equities.

Investment implications

In turbulent times, it pays to assess the big picture and maintain composure. Our core positioning is crucial to portfolio resilience and is designed to make the most of the opportunities we expect our base case scenario to present. Our convictions regarding specific markets and segments should enable investors to generate additional value. Moreover, retaining some flexibility gives investors scope to respond to surprises.

3 things you need to know

1. After the war, crunch time

• The Israel-Iran war appears to have blown over for now, though conflicting reports on damage to Iran’s nuclear sites leave scope for escalation.
• Market reaction has been contained and the oil price has cooled, with investors reassured that the Strait of Hormuz has – so far – remained open.
• It is now crunch time for investors, who must weigh up a host of upcoming events and indicators to assess whether equity markets can sustain their positive momentum.

2. A busy Summer

• In the Middle East, the key test for markets is whether the Israel-Iran ceasefire holds.
• Another pressing deadline is the 9 July deadline for tariff negotiations with the US.
• Q2 reporting season from mid-July will show the impact of tariffs on US corporates.
• Data will shed light on the US economy’s resilience.
• Big Beautiful Bill Act goes live.
• The Fed, in wait-and-see mode, faces pressure from Trump to cut interest rates.

3. Keep Europe, watch US tech

• The uncertainty around US policy and yield levels keeps us cautious on US equities.
• However, we see merit in retaining optionality on US technology stocks, given their earnings resilience and upbeat outlooks.
• US technology earnings are the main beneficiaries of USD weakness and the least sensitive to higher interest rates.
• In Europe, the catalysts are in place for a continued revival. We favour domestic stocks and high-yield bonds.