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Brexit dominates fears for the global economy - FT.com
The sentiment guiding international investors and policymakers over the last week could perhaps best be expressed by a sharp indrawn breath. As one opinion poll after another suggested that a majority would vote for Britain to leave the EU, Brexit has emerged as the biggest short-term risk bar none for the global economy.

The result has been a flight to safety in markets, a display of caution from central banks, and frenetic activity behind the scenes to prepare for the turbulence that could follow next Thursday's referendum.

Added to existing questions over US and global growth, Brexit worries have fuelled a rally in the safest sovereign debt, pushing yields on German, Swiss and Japanese debt further into negative territory and sending the yield on 10-year US Treasuries to a four-year low. A sell-off in Europe's periphery suggests investors are having renewed doubts over the EU's institutional stability. Polish bonds are suffering from calculations that poorer members would receive less from Brussels if the UK's departure cut the funds available.

This is nothing compared with the volatility that is likely in the immediate aftermath of the vote. Sterling -- already the weakest of any major currency against the dollar this year -- would be the first casualty of a decision to leave. A stampede into havens such as the Swiss franc and yen could cause problems for countries already struggling with uncomfortably strong exchange rates.

by Bernard on Sun Jun 19th, 2016 at 03:29:54 PM EST

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