Friday, June 24, 2016

Displeased markets sink after Brexit vote

Dow plunged 610, decliners over advancers  better than 5-1 & NAZ off a whopper 202.  The MLP index retreated a very big 10+ to the 311s & the REIT index lost 3+ to the 348s.  Junk bond funds were a little lower & Treasuries were bought, taking the yield on the 10 year Treasury below 1.6%.  Oil dropped 5% while gold soared to 1322 as a safe haven investment.

AMJ (Alerian MLP Index tracking fund)

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Light Sweet Crude Oil Futures,A47.61 Down 2.50 (5.0%)

Live 24 hours gold chart [Kitco Inc.]

Global markets buckled as Britain's vote to leave the EU drove the pound to the lowest in more than 30 years while sparking demand for haven assets from US Treasuries to gold.  The Dow fell 587 (3.4%), erasing gains for 2016 as bank shares plunged.  European stocks bore the brunt of the carnage, with the Stoxx 600 Index sliding 7% in its worst day since October 2008.  The ¥ briefly strengthened past 100 per $ for the first time since 2013.  Treasury yields had their biggest drop in more than 4 years and gold rallied above $1300 an ounce.   Volatility surged, with the CBOE's measure of anxiety jumping 30%.

The victory for the “Leave” campaign prompted Prime Minister David Cameron to resign, while Scotland’s First Minister Nicola Sturgeon said a 2nd referendum on independence was back “on the table.”  The outcome stunned many investors who'd put wagers on riskier assets over the past week as bookmaker odds suggested the chance of a Brexit was less than one in 4.

World Markets Roiled by Brexit; Dow Plunges Over 550 Points

The ECB said it will give banks all the funding they require to quell market turmoil after the UK voted to leave the EU.  “The ECB stands ready to provide additional liquidity, if needed, in euro and foreign currencies,” the institution said.  It is “closely monitoring financial markets and is in close contact with other central banks.”  The announcement comes after Britons opted to quit the bloc, sending the £ to a 3-decade low.  Global stocks tumbled & European bond spreads widened, with S&P saying the UK will lose its top credit rating.  Bank of England Governor Mark Carney declared that the central bank can provide an extra £250B ($345B) thru its existing facilities.  ECB pres Mario Draghi had assured investors before the vote that his institution was prepared to provide liquidity & intervene to stabilize markets if necessary.  “The ECB is ready for all contingencies,” Draghi said on Tues.  “We’ve done all the preparations that are necessary.”  In a non-Brexit related operation, the ECB allotted €399B ($443B) of 4-year loans to euro-area banks.  Carney said UK policy makers will assess conditions in the coming weeks & “consider any additional policy responses.”  Investor bets on a Jul interest-rate cut increased after the publication of the results.

ECB Stands Ready to Add Liquidity After U.K. Votes to Leave EU

Oil prices plunged but erased some overnight losses after the UK's vote to leave the EU triggered a selloff across markets.   US oil prices dropped on the NY Mercantile Exchange, after falling as low as $46.70 a barrel in overnight trading.  Oil prices have wavered in recent sessions as uncertainty about the referendum's results roiled markets around the world.  After dropping to 13-year lows in Q1, oil prices have rallied more than 80% on expectations that the global glut of crude is shrinking.  But some say the market remains oversupplied & warn that prices could fall in the coming months.  Oil traders said they had not taken large positions ahead of the vote due to uncertainty, but the outcome still came as a surprise.

Oil Prices Hammered by U.K. Vote to Leave EU

Traders will have a lot to think about over the weekend as the shock of the British vote sinks in.  Janet Yellen can now be counted on avoiding interest rate increases for months, if not years.  Oil remains in uncharted territory.  The effects on global economies will take time to assess.  The British vote might give other major euro powers the idea about leaving the euro zone.  Weak members, such as Spain, can not leave since they are addicted to bailout money.  But Germany has money, giving it the freedom to go it alone if it chooses.  Dow finished near the low & next week will not be pretty in the stock market.

Dow Jones Industrials


Markets tumble after UK votes to leave the EU

Dow sank 451, decliners over advancers more than 5-1 & NAZ dropped 149.  The MLP index gave up 4+ to the 318s & the REIT index lost a relatively mild 1+ to the 349s.  Junk bond funds were weak & Treasuries rallied.  Oil is down to the 48s while gold soared above 50 to go over 1300.

AMJ (Alerian MLP Index tracking fund)

Crude Oil   48.37    -1.74 (-3.47%)

Gold      1,314.80   51.70 (4.09%)

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US stocks tumbled, joining a worldwide selloff with the Dow dropping more than 350 points, as the UK's decision to leave the EU fanned speculation that a divided Europe would put another brake on already fragile global growth.  Banks were among the worst hit after yesterday rallying the most in 5 weeks.  While severe, declines in equities were about half of what was signaled by losses in stock futures before markets opened.  Overnight, stock futures on the benchmark fell far enough to reach trading curbs that blocked further losses.  The steep selloff was compounded by the fact that markets had rallied during the past week on optimism the UK would vote to remain in the EU, with the S&P 500 rising 1.7% in 4 sessions.  The £ dropped the most on record to its weakest since 1985, while the ¥ rallied on demand for haven assets.  Polling before the referendum had indicated a vote too close to call.  The final tally showed voters had backed “Leave” by 52% versus 48% for “Remain.”

U.S. Stocks Tumble Amid Global Selloff After U.K. Brexit Vote

Orders for business equipment unexpectedly fell in May by the most in 3 months, pointing to weakness in investment even before the likely damage to confidence stemming from UK decision to leave the EU.  Orders for non-military capital goods excluding aircraft, a proxy for future business investment in items like computers, engines & communications gear, declined 0.7% after falling 0.4% in Apr.  Shipments of such business equipment, used in calculating GDP, fell 0.5% after climbing 0.6%. Total bookings for durable goods slumped a more-than-expected 2.2% (forecast was 0.5% drop)

Sluggish global demand, the lingering effects of last year's surge in the $, weaker corp profits & a sharp drop in investment in the energy sector have weighed on investment decisions.  American factories are now faced with a new challenge, the fallout from the UK decision to exit the EU.

Orders for U.S. Capital Goods Unexpectedly Dropped in May

The stock market has been vastly overbought for months & now that is seen with today's selloff.  The consequences of Britain leaving the EU are diffficult to grasp & will take some time to fully assess.  In the meantime uncertainty skyrocketed, something the stock market does not like.  The VIX, uncertainty index, is up 4 to 21 versus lounging around the 12s for months.  Much more selling lies ahead.

Dow Jones Industrials

stock chart