The combination of economic weakness and policy indecisiveness leaves Jan Loeys, chief market strategist in New York at JPMorgan Chase & Co., recommending gold and U.S. assets, on the hope of greater quantitative easing, and shying away from peripheral Europe's bonds and stocks that traditionally benefit from output growth.

Ready for More

Investors should "position for further monetary action, even if it doesn't do enough," said Loeys, whose colleagues anticipate worldwide expansion of 1.4 percent this quarter -- the weakest since the end of the 2009 recession.

One drawback is that the central banks with the most ammunition, such as the European Central Bank and some inemerging markets, are hesitant to act, he said. India unexpectedly chose not to reduce its 8 percent benchmark repurchase rate last week, while Loeys notes other developing nations aren't cutting because their currencies have weakened and they fear creating asset bubbles.

"From a global point of view, those willing to do something probably don't have a lot of impact, and the rest who can do something are reluctant," he said.

Five Years In

Almost five years after central banks first sprang into action to buoy the world economy, they are being forced to react to a third successive annual fading of recovery hopes as Europe's debt crisis threatens to engulf Spain and Italy, hiring in the U.S. stalls and China slows. A June 1-5 poll of economists by Bloomberg News found the median estimate for growth worldwide this year falling to 3.2 percent from the May forecast of 3.4 percent.

Developed economies are running into the limits of monetary policy, the Bank for International Settlements said in its annual report yesterday. Central bank balance sheets now contain $18 trillion of assets, about 30 percent of global gross domestic product, double the ratio of a decade ago, and interest rates are as "low as they can go," the BIS said.

Governments have "cornered" central banks into prolonging stimulus, and have dragged their feet on restoring fiscal order, said the Basel, Switzerland-based BIS. Monetary policy only "buys time" in the short run for leaders to act, and leaving an easy stance for a prolonged period poses economic risks, it said.

David Fuller's view Inevitably, there are limits to monetary policy, not least in the indebted west where is has cushioned economic contraction but delayed progress towards debt reduction, as the BIS points out above.

However, with the global economy continuing to slow a synchronised response is both likely and desirable. China-led growth economies have additional scope to stimulate now that crude oil prices (Brent & WTI) have fallen back sharply.

Mr Bernanke and his colleagues at the US Federal Reserve have been hoping that they would not need to introduce QE3. This would be an admission that their earlier efforts had not been as effective as hoped. Also, it would be politically charged at this stage of the Presidential Election cycle. The Fed had hoped not to be accused of favouring the incumbent but it may have to endure this in line with the employment portion of its dual mandate.

As and when investors sense that a synchronised monetary stimulus is underway, that will support global stock markets which began to lose this month's technical rally momentum last Thursday, as you can see with this daily chart of the Nasdaq 100 Index. Meanwhile, the early June reaction lows for stock market indices remain psychologically important support levels which may be challenged in the absence of a strong policy response from central banks.