Markets enjoyed a new phase in the central banking playbook in July. Interest rates have only been heading higher this year in a bid to bring back inflation to target. But the Fed and the ECB recently dropped guidance that borrowing costs would keep rising. Indeed, they hinted that multiple consecutive rate rises and their July hike could be the last. A pause in policy and a more neutral bias is the modus operandi. Data dependent is now the new mantra. That means volatility could increase as traders are guided less by central bank communication, and more by unpredictable economic releases.

The dollar has been in corrective mode after dropping sharply at the start of the month on the softer-than-expected US inflation data. The “Goldilocks” phrase to describe the US economy has reappeared – one that is not too hot, nor too cold. Markets seem confident that a soft landing is now the base case with the economy still ticking over, even though that has historically been tough to achieve. The recent US bank’s survey (SLOOS) points to a squeeze on the economy as lending conditions tighten further.

Gold has arrested two months of declines as the peak in US rates is eyed, along with lower Treasury yields. Indeed, the precious metal climbed to its highest level in two months. Speculators increased their gold longs to a five-week high recently while China continues to boost its gold reserves. But bullish momentum in the non-yielding metal has been stalled by the recent rebound in the dollar. Going forward, Fed policy is key for gold over the medium term.

Major events of the month, in numbers:

*0.2% US Core Inflation m/m: We passed peak inflation a few months back, but the speed of the descent remained in doubt. July’s numbers offered some hope on that front. Core inflation, which had been hot and sticky for six months, rose less than an annualised 2% in June. “Game changer” and “turning point” were how some investment banks described this. Lower price pressures plus decelerating job growth – the next nut to crack – should allow the Fed to go easier.

* 35,559 Dow Jones Industrial Average: We could have picked the benchmark S&P 500 which powered to its fifth consecutive month of gains. But the Dow finally broke resistance at 34,281, the top from August 2022. The move is especially notable as it suggests broadening participation in this year’s rally. A change in the narrow leadership theme is welcome. Global stocks are also participating with the MSCI All-Country World index ex-US recently hitting new 52-week highs. The bull market no longer appears to be a megacap tech story. This is potentially positive for its sustainability.

*+13.5% Brent Crude: Oil prices looked to have built a solid base in previous months. The July rally was kicked off by Saudi Arabia’s additional voluntary cut of 1mn barrels per day. It has extended further on signs of tightening in the market, allied to China stimulus hopes offering some upside to the demand outlook. The key question now is whether the Saudis will roll this cut into September or start to unwind it. If the recent price strength gives them confidence to do the latter, expectations need to be managed as it could put renewed pressure on the market.