Macro Snapshot - August 2026

July’s market backdrop was defined by the interaction between geopolitics, energy prices and monetary-policy expectations.

Oil moved sharply higher as concerns around Middle Eastern supply routes, including the Strait of Hormuz, brought energy security back to the centre of the macro debate. At the same time, equity-market leadership narrowed. UK equities advanced, supported by their exposure to energy, mining and financials, while US, global and Chinese equities weakened in sterling terms.

The month did not fit neatly into a risk-on or risk-off frame. Performance was shaped less by a broad shift in sentiment than by sector mix, regional exposure and sensitivity to higher energy prices.

UK equities were among the strongest regional markets. Their resilience owed more to index composition than to any clear improvement in the domestic outlook. Energy and financial companies benefited from higher oil prices and elevated rates, while the market’s lower weighting to large technology companies reduced its exposure to weakness in global growth stocks.

Central banks remained cautious. The Bank of England held Bank Rate at 3.75% in July and set out a wide range of possible outcomes from the energy shock. Its central case pointed to inflation peaking later in 2026, but it also considered a more adverse path in which higher energy prices proved more persistent and growth weakened further.

The US Federal Reserve kept its target range at 3.5%–3.75%, with three members voting for an increase. The European Central Bank also left rates unchanged after its June rise, noting that the scale and duration of the inflationary impact remained uncertain.

Monthly and one-year performance snapshot

The July data shows a clear divergence between energy-linked assets, UK equities and several global equity regions.

The charts below provides a snapshot of unhedged index fund investment returns across a range of asset classes and regional exposures, measured in sterling terms.

Past performance is shown for context only. Returns are measured in sterling and may differ from locally reported market returns because of currency movements.

Oil reclaimed centre stage

Oil was more than July’s strongest-performing asset. It was the main channel through which geopolitics affected inflation expectations, monetary policy and equity leadership.

Concerns over Middle Eastern supply pushed prices higher, although changing diplomatic expectations produced sharp swings during the month.

For allocators, persistence matters more than the direction of the next move. A prolonged energy shock would affect headline inflation, household demand, corporate margins and central-bank policy. It would also widen the gap between energy producers and more rate-sensitive, consumer-facing or energy-intensive businesses.

The key question is whether the impact remains concentrated in headline inflation or begins to feed into wages, services prices and inflation expectations. That will help determine whether lower policy rates are merely delayed or become less likely altogether.

UK equities benefited from their market composition

UK equities led the regional markets in July, but the source of that return matters.

The market’s exposure to energy, mining and financials was supportive as commodity prices and bond yields rose. Its relatively low weighting to large-cap technology also left it less exposed to weakness in parts of the US and global growth complex.

In other words, the UK market was well aligned with July’s conditions.

That does not imply stronger domestic fundamentals. It does, however, underline the need to look through country labels and examine the sector, factor and revenue exposures that sit underneath them.

The more useful question for allocators is whether this relative performance reflects a durable shift or a narrow response to a particular macro backdrop.

Global equities lost momentum

The broader equity picture was weaker.

Global and US equities declined in sterling terms. China was the weakest regional market reviewed, while emerging markets fell more modestly and European and Indian equities were broadly flat.

The dispersion reflected differences in sector concentration, currency exposure, domestic policy and valuation sensitivity.

Bonds provided modest support, not a strong defensive offset

Fixed income delivered modest positive returns in July.

US Treasuries rose in sterling terms, while UK all-stocks gilts and global government bonds also advanced. The gains provided some diversification as equities weakened, but not enough to offer a strong defensive offset.

Central-bank caution remained the main constraint. The Bank of England, Federal Reserve and European Central Bank all kept policy restrictive while assessing whether the energy shock would prove temporary or feed into broader inflation.

For allocators, the issue is not simply whether government bonds diversify equity risk, but which risk is dominant.

Duration may help in a growth slowdown, but it remains vulnerable when inflation expectations, term premia or policy-rate assumptions rise. The diversification case therefore depends on the nature of the shock.

What stands out for allocators

• Oil was the dominant macro and market driver, influencing inflation expectations, central-bank rhetoric and sector leadership.

• UK equity outperformance was primarily a composition effect, with energy, mining and financials benefiting from the prevailing environment.

• Global equity performance became more dispersed, with China, US equities and the broader global index all weaker in sterling terms.

• Government bonds provided modest diversification, but the persistence of inflation uncertainty limited the scale of the rally.

In summary

July showed how the source of macro risk can also become the source of relative return.

Higher oil prices complicated the outlook for inflation, growth and monetary policy, while supporting parts of the UK equity market. That helped UK equities outperform as broader global and US markets weakened.

Central banks remained cautious. The Bank of England, Federal Reserve and European Central Bank all held rates steady, but their communication pointed to the same unresolved issue: whether the energy shock will prove temporary or persistent.

For allocators, the central question is not whether one market has become structurally more attractive. It is whether current leadership rests on durable fundamentals or on a narrow set of conditions.

The next phase will depend on three things: how long oil prices remain elevated, whether second-round inflation effects emerge, and whether the current pattern of market leadership broadens or fades.

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Disclaimer: This commentary is for informational purposes only and reflects general market observations. It does not constitute investment advice, a recommendation, or an invitation to engage in any investment activity. Everyone’s situation is different, so if you are unsure about a decision, it’s important to seek guidance from a qualified financial professional.

The views, forecasts and figures included reflect analysis at the time of writing, unless otherwise stated. Sources used are believed to be reliable, but markets and circumstances can change quickly, which means our views may also evolve over time.