The FTSE closed down 0.45 per cent at 6,215.47 today in its first monthly fall in over a year over concerns about future monetary stimulus.
Following a few days of gains on a bounce back from the losses sparked by the initial announcement that the US Federal Reserve could begin to taper its QE programme in the near future, the flat finish today quelled any hopes of a longer recovery.
Comments from the Federal Reserve’s Jeffrey Lacker that he was opposed to further QE and that market volatility following the tapering announcement should be expected sent the FTSE down into negative territory.
Going into the second half of 2013, Deutsche Bank analysts are confident that equities can recover. Using 1994 as a template to assess current developments (when the Fed surprised markets with a tightening of monetary policy) as a “big market event with no impact on market recovery”, they expect leading economic indicators to continue to rise, leading equities to bounce back strongly. They add that June’s European Flash PMI “points to an improving trend consistent with a return to European growth during the third quarter of 2013”.
Monday will also be Mark Carney's first day on the job as the new governor at the Bank of England. Expectations are high, with coverage of his appointment met with almost universal approvement. Capital Economics analysts put the odds of Carney resuming QE at 50 per cent, and expect "a commitment to keep policy loose until a certain threshold has been reached.... The threshold could be for nominal GDP, unemployment or wage growth".
The German Dax closed down 0.39 per cent, the French CAC down 0.62 per cent, the Italian MIB down 1.24 per cent and the Spanish IBEX down 1.04 per cent.