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Hints that looser monetary policy is still on the table

In reaction to the 2008 financial crisis an unprecedented effort by central banks has been witnessed in order to navigate through some testing economic conditions in an attempt to not only rescue their troubled financial institutions but also to avoid falling into a more prolonged slump. Those that acted most vehemently and at the quickest pace tended to recover at the fastest rate with the US now experiencing many years of strong economic growth. Those slower to react such as the ECB have seen a more muted recovery with many banks still in a fragile state. But the rapid expansion of central bank balance sheets combined with ultra-low interest rates has led some observers to speculate that too much has been done over too long a period resulting in the central bank tool box now effectively empty.

The +6.4% rise in the FTSE World Europe ex UK index over the course of June suggests such an observation could well be wrong, certainly as far as equity as an asset class is concerned. With hints from both the US Federal Reserve as well as the European Central Bank that looser monetary policy is still very much on the table the yield on offer from equity markets remains compelling. Perhaps more troubling, however, is the risk to the capital component of this attractive yield as the economic situation which underpins the equity market remains far from clear and not necessarily reflective of the strong double digit gains we have witnessed so far, this year. Political developments remained troubling too as Middle East tensions flared with the attack on an oil tanker in the Strait of Homuz. Brexit also continued to contribute to the woes with UK Prime Minister Theresa May resigning, likely to be replaced by hard Brexit advocate Boris Johnson. Donald Trump, while resolving the tariff and immigration dispute with Mexico, remained at logger heads with China ahead of the G20 summit which took place at the end of the month.