06-30-2016, 01:34 PM
More worrying is what S&P also said: that debt coming due over the next 12 months is 755pc of Britain’s external receipts and large sums have to be rolled over continuously. This is the highest for all 131 rated states, thanks to London’s role as a global financial hub. We will not know whether there is any mismatch, either in currencies or maturities, until the repayment deadlines hit and the skeletons come out of the closet. The test lies ahead.
Was Brexit fear a giant hoax or is this the calm before the next storm?
What we have learnt from the market moves since Brexit is that Europe is just as vulnerable as Britain. The vote has already triggered a banking crisis in Italy, where the government is struggling to put together a €40bn (£33bn) rescue but is paralysed by the constraints of euro membership.
Was Brexit fear a giant hoax or is this the calm before the next storm?
The FTSE 100 index of equities in London is back to where it was on the eve of the vote, compared to falls of roughly 6pc in Germany and France, 10pc in Spain, 11pc in Italy, 13pc in Ireland, and 14pc in Greece. My point is not that they we are in OK and that they are in trouble. That would be facile. The FTSE 100 is cushioned - or flattered - by the devaluation effect on foreign earnings of big multinationals. The broader FTSE 250 is a purer gauge, and that has dropped 8pc. Homebuilders Persimmon and Taylor Wimpey are still down by a third. It is not painless.
Was Brexit fear a giant hoax or is this the calm before the next storm?
Morgan Stanley says they need to wake up. It warns that the eurozone will suffer almost as much damage as Britain in a 'high stress scenario', and so do others. Danske Bank says the UK and the eurozone will both crash into recession later this year.
Was Brexit fear a giant hoax or is this the calm before the next storm?
The more sterling falls, the greater the net stimulus for the British economy. The reverse holds for the eurozone. It is a further deflationary shock at a time when Europe is already in deflation, when inflation expectations are in free-fall and bond yields are collapsing below zero, and when the ECB is running out of options.
Was Brexit fear a giant hoax or is this the calm before the next storm?