At the other end of the continent, fears over the stability of Portuguese bank Banco Espirito Santo undermined investors’ confidence. The bank was subsequently ordered to raise capital following news of huge first-half losses. Portugal’s PSI20 index fell 12.1% over July as a whole and investors endured high levels of daily volatility. By comparison, during the month, Spain’s Ibex 35 index fell 2% and Germany’s Dax index fell 4.3% while, in France, the CAC 40 index fell 4%. That said, economic growth and confidence in Europe is showing signs of recovery, according to the International Monetary Fund although managing director Christine Lagarde did warn financial markets might be “too upbeat”. She urged monetary policymakers to maintain the region’s interest rates at their current low level until demand has “fully recovered” and warned of “the danger of a vicious cycle” created by high levels of unemployment and government debt. The rate of unemployment in the euro area eased to 11.5% during June. For his part, European Central Bank president Mario Draghi said interest rates in the eurozone would remain at 0.15% for “an extended period” because of the outlook for inflation. The eurozone’s rate of inflation continues to languish, dropping from 0.5% in June to 0.4% during July. Germany’s annualised rate of inflation did ease from 1% in June to 0.8% in July but Spain’s consumer prices continued to decline, posting an annualised drop of 0.3%. Nevertheless, Spain’s economy expanded more strongly than expected during the second quarter, posting annualised growth of 1.2% and quarterly growth of 0.6%. From January 2015, interest-rate decisions will take place every six weeks, rather than every month, and minutes from the meetings of policymakers will be published. Equities were the best-selling asset class for a 15th consecutive month during June, according to the Investment Management Association, and investors’ appetite for funds in the Europe excluding UK sector picked up over the month. The mainstream sector was ranked 11th out of a total of 36 fund groupings while demand for European Smaller Companies funds also improved and the sector ended the month in 14th place.
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