Is the market's' obsession with this week's Brexit vote a symptom of a much deeper malaise?
There's little doubt that markets have become increasingly skittish as they await the results of Thursday's referendum on the UK's continued membership of the European Union, particularly with opinion polls pointing to strong support for the "Leave" camp.
Adding to the nervousness, the International Monetary Fund has come out with a bleak warning about the economic consequences. A Brexit vote, it said, would have a "negative and substantial" impact on the UK economy, as well as harming the economies of other European countries with close UK ties, such as Ireland, the Netherlands and Belgium.
This growing sense of uncertainty pushed the VIX index – also known as Wall Street's fear gauge – to its highest level in four months last week, while traditional "safe havens" such as gold and silver are enjoying a surge in popularity. (So far this year, the gold price has risen by more than 20 per cent, while the price of silver has jumped almost 30 per cent.)
Meanwhile, professional investors – who are concerned that a Brexit vote could trigger sharp slides in European share markets – have boosted their holdings of cash to the highest level since November 2001, according to the Bank of America Merrill Lynch global fund manager survey.
European bank stocks are also feeling the pressure as investors ponder the possible ramifications of a Brexit.
But other analysts argue that these Brexit worries are overblown. They predict that the hysteria surrounding the Brexit vote is likely to prove a major anti-climax, similar to the false alarm over the Y2K bug – the major software flaw that was supposed to wreak havoc in computers and computer networks around the world at the beginning of the year 2000.
But while Brexit fears may be overblown, investors have legitimate misgivings about the waning authority of the world's major central banks.
Thursday's decision by the Bank of Japan to keep monetary policy unchanged dealt a vicious blow to the Japanese share market, which dropped 6 per cent last week.
The previous day, the US Federal Reserve kept interest rates steady, and repeated its intention to increase its rates twice this year.
The trouble is that the market simply does not believe the Fed will do anything of the sort. And even though Fed chair Janet Yellen said it was "not impossible" that policy-makers could raise rates next month, investors believe that this is a pipe dream. Indeed, markets believe there is a two-thirds chance that the Fed will do nothing for the rest of the year.
The market's casual dismissal of the Fed's stated intentions is all the more remarkable given that, despite the weak May employment figures, the US labour market remains strong, unemployment is extremely low and inflation is rising.
Instead of listening to the Fed, investors give more credence to the sceptics who argue that the US economy is getting towards the end of its growth cycle, and simply isn't resilient enough to withstand another rate rise. They also warn that if it raises rates the Fed risks fuelling a fresh rise in the US dollar, which will dent the sales of US exporters and create fresh instability in emerging markets, which have massive, US-denominated borrowings.
This leaves the Fed in an extremely awkward position. Because while US raising interest rates is risky, not doing so could be even more so. Investors are concerned that rising US wages are squeezing the profit margins of US companies. What's more, if the Fed delays its decision for too long, it will lack effective ammunition with which to support the economy when growth does inevitably slow.
