Only a week ago global markets were reeling from their worst day on record, with US$2 trillion wiped from the books in the hours after Britain voted to cut European Union ties.

But at least in the financial world, the so-called Brexit turned out to be a fleeting panic, not the start of a prolonged swoon. Markets bounced back this week across Europe, Asia and in the United States.

The Dow Jones industrial average and Standard & Poor's 500-stock index finished the week with four straight days of gains. And in London, despite unsettling political upheaval, the FTSE 100 saw its strongest week in more than four years.

The quick return to calm reflected a realisation among investors and traders that any impact of Britain's rupture would develop gradually, and perhaps be largely contained within Europe. For now, the global economy looks much as it did before the vote: growing slowly, with borrowing costs at historic lows.


Though economists say the Brexit could prove more catastrophic if it triggers other departures from Europe's 28-nation union, the departure by itself is merely one more on a long list of global worries - one that includes terrorism, wage stagnation and a slowdown in China.

"Nobody even thought, going in to that vote, that Brexit was a possibility," said Tom Porcelli, chief US economist at RBC Capital Markets.

"The market was too complacent. So you had this wild reaction.

"The worst fears have not materialised. But make no mistake, it's a long road."

On Friday, the Dow climbed 17 points, to nudge up by 0.1 per cent. The S&P 500 edged up by 0.2 per cent. Both indexes - after rising about 3.5 per cent in the week - are now almost where they were before the vote.

James Bullard, the president of the Federal Reserve Bank of St Louis, said the "verdict so far is that Brexit will not have a big impact on the US".

Though equities have recovered, that tells only part of the story, economists say, noting fresh signs of pessimism about the world's path. The Brexit has pushed fund managers more heavily into the bond market - meaning they are eager to put their money into the most conservative investments. That demand has further pushed down yields on bonds across the world, and the weekend yield on the 10-year US Treasury note briefly hit a record low.

Yields have also fallen amid signs that central bankers are again willing to loosen monetary policy to stimulate their economies. Bank of England governor Mark Carney said on Friday that Britain could cut already record-low interest rates this northern summer, because the "economic outlook has deteriorated".


Bond yields have also fallen over the past week in Japan, France, Germany and the Netherlands. In Switzerland, after the Brexit vote, the yield on a 30-year bond plunged into negative territory for the second time in less than two weeks.

The activity in the bond market suggests "a weaker global economic outlook," said Scott Anderson, chief economist at Bank of the West.