The U.S. economy surprised many by growing at a 2.8% annualised rate in the second quarter, an acceleration from 1.4% in Q1, driven largely by increased household spending. Despite this positive overall growth, signs of economic slowdown are evident, reinforcing the likelihood of near-term monetary easing as inflation is expected to soften. Evidence of this slowing can be seen in the Interest-rate sensitive sectors such as property sales and manufacturing which are showing signs of strain despite a resilient broader economy. High financing costs and election-related uncertainties may limit a manufacturing rebound before November.

July PMI surveys showed mixed economic trends in Europe. The Eurozone’s manufacturing PMI fell to 45.6, services from 51.9, and the composite to 50.1, aligning with expectations of slower GDP growth. In contrast, the U.K.’s manufacturing PMI rose from 51.8, services to 52.4, and new business to 55.3, indicating stronger economic momentum and leading to an increased 2024 GDP forecast of 1.0%.

The upcoming Eurozone CPI will provide insight into inflation as the ECB considers a potential rate cut in September, with a slight decrease to 2.4% year-on-year expected in July. Separately, the Bank of England (BoE) has reduced its interest rate by 0.25% to 5.00% despite mixed economic data and persistent inflation.

President Biden announced he will not seek re-election this November and endorsed Vice President Kamala Harris for the Democratic Party nomination. Limited polling data suggests a Harris vs. Trump matchup similar to the previous Biden vs. Trump race, though it may take time for polls to reflect public sentiment accurately.

Global stock markets saw gains in July, with the MSCI World Index rising 1.7% and the S&P 500 up by 1.1% with the exception being the Nasdaq which fell by 0.75% due to a shift by investors away from some of the largest technology companies. Small Caps continued their upward trend, with the Russell 2000 index rising 11%.

In the U.K., markets recovered in July, with the FTSE100 increasing by 2.5% while the broader index, the FTSE 250, was up by 6.5%. Smaller companies did not perform as well with the Small Cap Index up by 3.89%, the AIM All-Share Index up by 2.96% and the Fledgling index only up 1.23%. Our portfolio performed extremely well, increasing by 4.4% and after accounting for expenses the NAV was up by 3.8% for the month.

In July, the largest contributors to performance came from our holdings in AEW and Tritax Big Box followed by Games Workshop, Impax Asset Management and PayPoint. We top sliced our holdings in Cerillion and Gamma, added to our holding in Relx and introduced Auto Trader to the portfolio which resulted in our cash on hand comprising 2.7% of the portfolio.  Auto Trader is the UK’s largest digital automotive marketplace where used and new car buyers can conduct their research and complete the transaction. It has the technology to be able to grow its economic footprint over time by delivering better online buying and selling experiences to its extensive customer base.