Welcome to the Questa July Market Commentary. Markets are never short of drama, are they? June served up another helping – with airstrikes, trade tensions, and surprise growth numbers all jostling for attention. And as we move through July, there’s still plenty to keep investors glued to the headlines (and maybe reaching for a stiff drink).

Let’s break it down – no jargon, no fluff, just what you need to know.

Middle East tensions: Oil jumps, nerves fray

Just when it seemed things might settle down, Israel launched mid-June airstrikes on Iranian nuclear facilities. Predictably, oil prices shot up and markets got twitchy. Iran’s threats to shut the Strait of Hormuz – a vital route for global oil supply – only added to the anxiety. It didn’t take long for investors to start hedging their bets.

Energy markets always hate uncertainty, and this is a big one. If the Strait ever actually closes, we’re talking serious supply issues. For now, though, oil has calmed – but the tension is far from over.

America: Tariffs, debt, and a tumbling dollar

Trump’s trade war refuses to fizzle out. While the Court of International Trade managed to block some tariffs, the administration has already found workarounds. Case in point? Steel and aluminium tariffs doubled in early June – from 25% to a hefty 50%.

Markets are braced for the 9th July deadline, when the ‘tariff truce’ runs out. If tit-for-tat tariffs resume, we could see another wave of market volatility.

Meanwhile, the dollar keeps slipping. And who can blame it? US debt has hit a staggering $36 trillion, with Trump’s so-called “Big Beautiful Bill” set to add another $3.3 trillion. That’s hardly comforting news for currency traders.

No wonder investors are sniffing around safer options – German bunds are getting some love as a result.

Over at the Fed, they’ve kept rates on hold at 4.25%-4.5%, signalling caution but not panic. Powell’s message? Sit tight. Inflation’s cooling, jobs are holding up (just), but more tariff-fuelled inflation could be around the corner.

Canada, for its part, backed down on its tech tax – a small but important gesture to keep US trade talks alive.

UK: Political headaches and cautious optimism

Here in the UK, Keir Starmer and Chancellor Rachel Reeves are juggling the joys of government with the realities of a tight fiscal rulebook. Reforming disability benefits triggered a proper backbench revolt, and the pressure’s building for tax changes elsewhere.

The Lifetime ISA looks set for a shake-up, and even cash ISA rates are under the microscope. Basically, no one’s safe from the Treasury’s calculator.

But here’s a reason to smile: the UK economy actually grew by 0.7% in Q1 – the best performance since early 2024. Household spending was also revised up. Not exactly a boom, but it beats the doomscrolling.

Still, don’t break out the bubbly just yet. April’s data showed a contraction, and Q2 is expected to be slower. Unemployment is creeping up too. One-off blip or the start of a wobble? Time will tell.

The Bank of England held firm on rates at 4.25%, and UK markets remained upbeat – the FTSE 100 hit an all-time high on 12th June. The IPO drought is another story though. Only five listings in Q1, and it’s hard to see that picking up anytime soon.

Europe: Defence spending, bond buzz, and quiet confidence

European defence stocks are having a moment – up nearly 70% in the first half of 2025. Trump’s threat to cut NATO support has forced countries like Germany to rethink military spending. Cue new borrowing rules and more cash for defence.

Elsewhere, the European economy has quietly surprised. Inflation ticked up to 2%, hitting the ECB’s target, and growth has been steadier than many feared. The weaker dollar’s helped boost European equities, and German bunds are reaping the benefits of America’s fiscal mess.

But don’t get too carried away. Germany – still the Eurozone’s big engine – is wrestling with slower exports, higher unemployment, and a growing number of troubled firms. Under the surface, the cracks are still there.

Asia: China slows, Japan steadies

China’s manufacturing numbers have now fallen for three months in a row. Even after the trade truce with the US, factories haven’t bounced back. The official PMI for June was 49.7 – better than May’s 49.5, but still below 50, which means contraction.

Premier Li Qiang is still banging the drum for 5% growth, but more and more economists are saying the same thing: China needs to slow down and shift focus to consumers, or risk much bigger problems later.

Over in Japan, there was a flicker of good news – industrial output rose 0.5% in May. But with fresh US tariffs kicking in, that momentum probably won’t last. The Bank of Japan is sitting tight with rates at 0.5%.

Emerging Markets: The quiet winners?

Emerging markets are notoriously hard to lump together – but a few are clearly finding their stride. Some have dodged tariffs by shipping early or rerouting goods through other countries. It’s not a long-term fix, but it buys time.

The falling US dollar, meanwhile, has opened a rare window of opportunity. Capital is flowing out of the US and into emerging economies at a pace not seen in nearly 20 years. PIMCO called it a “Goldilocks moment” – and they might be onto something.

India and Argentina are looking strong. Turkey, on the other hand, is wobbling thanks to domestic political upheaval.

So, where are we now?

Markets have done surprisingly well to recover from April’s jolt. Investors who stuck with it are now seeing the rewards. It’s a useful reminder – patience usually pays off, even when the headlines are full of noise.

And while July could still throw up a few surprises (especially around trade), there’s also been a quiet shift. As the Canada-US example shows, compromise is creeping back onto the agenda.

It won’t all be smooth sailing – but for now, the ship’s holding steady.