Monday, June 27, 2016

Markets sink after Brexit vote chaos

Dow sank 249, decliners over advancers 6-1 & NAZ dropped another 85 (almost 300 in 2 days).  The MLP index fell 4+ to the 307s & the REIT index lost a relatively mild 1+ to the 345s.  Junk bond funds were weaker & Treasuries rose, taking the yield on the 10 year Treasury below 1½% (near record lows).  Oil dropped to the 46s & gold soared (see below) as haven haven investments rallied.

AMJ (Alerian MLP Industrials

Light Sweet Crude Oil Futures,A

Gold Aug 16

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Prime Minister David Cameron rejected calls for a do-over vote on leaving the EU & set up a team of officials to prepare for withdrawal following the referendum last week that stunned the world & triggered financial-market turmoil.  The £ extended its drop to touch the lowest against the $ since 1985 & intl policy makers scrambled to respond after a weekend in which Cameron's administration appeared rudderless & Scotland's gov floated a referendum on its own independence.  Members of the splintered gov sought to reassure investors they'll be able to navigate the fallout.  Chancellor of the Exchequer George Osborne broke his silence to declare “you should not underestimate our resolve” to limit an “inevitable adjustment” in the economy.  Boris Johnson, the pro-Brexit favorite to succeed Cameron, said “the negative consequences are being wildly overdone, and the upside is being ignored.”  The rhetoric brought policy makers no closer to clarifying just what the UK's new relationship with the EU will look like & how badly the economy will suffer from the rupture. With Britain facing its greatest crisis in at least ½ a century, German Chancellor Angela Merkel & fellow euro leaders will kick off a series of crisis talks.  A new Cabinet Office unit, comprising officials from the Treasury & Foreign Office will start doing the groundwork for leaving the EU, which Britain joined in 1973.  Cameron's office said after the cabinet meeting that a 2nd referendum was “not remotely on the cards” following a public petition for one.  The BBC reported that the House of Commons is investigating allegations of fraud in connection with the petition, which had more than 2.5M signatures.

Cameron Rejects Do-Over Brexit Vote as Market Fallout Worsens

China weakened its currency fixing by the most since last Aug as global market turmoil spurred by Britain's vote to leave the EU sent the $ surging.  The People's Bank of China set the reference rate 0.9% weaker at 6.6375 per $.  A gauge of the greenback's strength jumped 2.4% in the past 2 days, the most since 2011, as the £ & the € tumbled.  The yuan dropped 0.3% to 6.6473, heading for its weakest close since Dec 2010.

The resurgence in the $ is threatening to upend China's dual strategy of allowing limited gains versus the greenback to combat capital outflows, & guiding depreciation against the currencies of trading partners, which helps exporters.  The yuan has dropped almost 10% versus a basket of peers since its Aug peak.  The impact of the vote on global financial markets is already showing & measures are needed to ensure stability in the intl economy, China's Premier Li Keqiang said today at the World Economic Forum in Tianjin.

China Weakens Yuan Fixing by Most Since August as Dollar Surges

Gold extended the biggest surge in 7 years as the fallout from the UK's decision to leave the EU boosted haven demand.  Bullion rose for a 2nd day as the £ extended a record selloff & euro equities fell to the lowest since Feb.  Gold jumped 4.7% Fri as the referendum result caused turmoil across global markets, spurring a $4.3B surge in holdings in bullion-backed funds (the most in 4 years).

Gold has rallied 25% this year as investors sought a protection of wealth & the Federal Reserve indicated it would keep interest rates low.  Bullion for immediate delivery rose 0.8% to $1325 after prices surged on Fri to the highest in 2 years.  Investors are concerned even after Chancellor of the Exchequer Osborne sought to calm markets.  Prime Minister David Cameron announced his resignation on Fri, the opposition Labour Party has been thrown into chaos & Scotland is agitating for independence.

Gold Extends Biggest Rally in Seven Years as Brexit Hits Markets

What's there to say?  The stock market is collapsing amid the chaos after the Brexit vote.  UK officials can do little to reassure investors & more ugly times lie ahead.  Over the long term, this mess will be worked out.  But we live in the short term & times are brutal when chaos rules.

Dow Jones Industrials


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