Heightened event risk 'likely to damage Europe in the short term'

Compounding the gloomy outlook among investors is the ratcheting up of event risk. Brexit is looming largest, driving down sterling and threatening a period of sustained instability.

Equities also potentially face a supply-side shock as oil-backed sovereign wealth funds may be forced to continue offloading equities if the price stays low or even deteriorates. Also weighing on the already negative sentiment is the dreaded prospect of deflation, with the ECB this month cutting rates further following Japan's surprise move in January, while the odds on the Fed cutting have fallen dramatically. Equity values tend to decline in a deflationary environment, and a decreasing price spiral is difficult to control. While some company earnings have disappointed, there has bee...