SOURCE:
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http://www.telegraph.co.uk/business/2016/06/29/was-brexit-fear-a-giant-hoax-or-is-this-the-calm-before-the-next/by: Ambrose Evans-Pritchard
Let us separate matters. We face a political upheaval of the first order, but this is a necessary catharsis. Governments come and go. So do political parties.
We face a much more serious constitutional crisis. It is why some of us want a national unity government, keenly alert to the interests of Scotland and Northern Ireland.
As Professor Kevin O'Rourke from All Souls College argues here, most Leavers waltzed into Brexit with scarcely a moment's thought for trauma inflicted on both sides of the Irish border. This carelessness must be rectified immediately.
What we do not yet face is a global financial crisis or a “Lehman moment”. The world’s central banks were ready for Brexit and have acted in unison.
The S&P 500 index of Wall Street stocks has shrugged off the vote. It is 13pc above its lows in February, when we really did have a nasty fright across the world.
Jerome Schneider from Pimco says there have been none of the tell-tale signs of systemic seizure. Rates on commercial paper have hardly moved. The Libor/OIS spread – the stress gauge – has been well-behaved. So have collateralised funding markets.
This may be no more than the calm before the real storm. The prime money market funds have much shorter maturities than in 2008, and this could lead to a “roll-over” crunch if fear returns. Assume nothing.
It was a dead certainty that the rating agencies would strip Britain of its AAA status. Standard & Poor’s told this newspaper before the vote exactly what it planned to do, and we reported the warning – not that it has made any difference to borrowing costs.
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.
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