The US Federal Reserve’s retreat from four rate rises this year has had a catalytic effect, reviving the fortunes of emerging markets and once again lifting the Sword of Damocles hanging over the heads of those who have borrowed $11 trillion in dollars outside US jurisdiction.
The Fed is in effect acting as the central bank for the whole world, giving a shot in the arm to an international financial system that is has never been so tightly-linked to the dollar or to US borrowing costs – at least since the end of the Gold Standard. The Japanese are launching a giant fiscal package – in theory 5.7pc of GDP – while France, Italy, and other eurozone states have taken advantage of the Brexit scare to end austerity more quickly than planned and to prime pump their economies. The net effect is double-barrelled monetary and fiscal stimulus across the world probably overwhelms any of the inchoate and mostly political worries stemming from Brexit – at least in the short-term. It is hard to see what can now justify Morgan Stanley’s decision to raise its risk probability of global recession over the next year to 40pc after the referendum.
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