The spectre of Ebola has re-emerged, with Brazilian health authorities now monitoring two patients for the haemorrhagic fever. This development comes as the UK, ever cautious of imported contagion, tightens its border safeguards. For markets, the calculus is straightforward: any hint of a pandemic reversal triggers a flight to safety.
Gilts, the dollar, and gold will be the first ports of call. Yet one must ask whether the fiscal cost of these precautions, necessary as they are, will further strain a public balance sheet already bloated by pandemic spending. The efficiency of these measures will be judged not by their political expediency but by their economic impact.
Capital flight from emerging markets, already under pressure from a strong dollar and high global interest rates, could accelerate if this situation escalates. The Bank of England, meanwhile, must weigh the inflationary risks of supply chain disruptions against the deflationary shock of reduced demand. In the City, we watch Brazilian bond yields and the real with more than passing interest.
This is not panic yet, but vigilance is the price of market stability. The ultimate test will be whether central banks can resist the temptation to print their way out of a health crisis that may well be contained.
