July Market Commentary

Commentary by Carbon Cap Management LLPA Thornbridge Appointed Representative

In July, major equity indices saw a reversal of recent negative performance with the MSCI World Index posting a monthly gain of 7.9% and the S&P 500 up 9.1%. Both indices remain in negative year-to-date territory with performances of -14.1% and -13.3% respectively. Global commodity markets gained with the Bloomberg Commodity Index up 4.1% on the month, bringing year-to-date gains to 22.9%. Brent Crude Oil gave back -4.2% in July but remains up +41.4% in 2022.

Compliance Markets

Most compliance carbon markets suffered a negative month in July due mainly to the worries that a global recession would result in lower emissions and the total value traded across markets was slightly lower than last year as seen in Figure 5. The EU ETS was the worst performing market dropping -12.9% in July and taking year to date returns to a negative -2.6%. Losses in Europe were also linked to the prospect of EU member states implementing measures to reduce gas consumption by 15% in response to the ongoing Ukranian war and the prospect for gas imports from Russian being cut. Offsetting these two negative factors is that power station economics continue to favour the burning of coal over gas, so the power sector is underpinning the carbon market with year-on-year demand growth. The California carbon market continued to struggle losing another -7.8% in July which brings year to date losses to -14.2%. The RGGI and UKA markets were also negative in July while the only positive market was New Zealand which rose +5.7% on the month, responding to positive recommendations from the Climate Change Commission.

Author: Alex Hackett, Senior Analyst

Alex is a member of the investment funds team. She is involved in the portfolio construction process and assists with regulatory reporting, trade surveillance and monitoring.

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July Market Commentary | Thornbridge News