Brexit Vote Stuns Financial Markets, Kills Fed Rate Hike Plans

Brexit Vote Stuns Financial Markets, Kills Fed Rate Hike Plans

Brexit Vote Stuns Financial Markets, Kills Fed Rate Hike Plans

$DIA, $SPY, $QQQ, $VXX

The DJIA dove more than 610 pts Friday after UK citizens voted to “leave” the European Union.

The result stunned Wall Street, as risk off caused a rush to the safety of Gold and US government bonds.

The Big Q: What will come next for Britain, Europe and the global economy?

U.S. stocks gave up all their gains from earlier in the year.

The DJIA dove 611.21 pts, or 3.4%, to 17,399.86, the low end of the trading range.

The S&P 500 dove 76.02 pts, or 3.6%, to 2,037.70.

The NAS Comp dove 202.06 pts, or 4.1%, to 4,707.98.

Stock indexes in Europe and Asia saw deeper losses.

The British vote brought injected uncertainty to financial markets, something investors do not like. Especially since a “stay in” vote factored in to the recent rally off of the August 2015 and January 2016 lows.

Traders responded by selling riskier assets that appeared to have the most to lose from disruptions in financial flows and trade: banks, technology companies and makers of basic materials.

More shares were traded than on any day since August 2011, when Standard & Poor’s downgraded the credit rating of the US government during a crisis over the budget and the country’s debt ceiling.

US Bond prices rose and yields fell.

The yield on the 10-year US Treasury note dropped to 1.56% from 1.75% Thursday, a large move.

Banks saw the largest losses by far.

Citigroup (NYSE:C) off 4.16, or 9.4%, to 40.30 and JPMorgan Chase (NYSE:JPM) fell 4.45, or 6.9%, to 59.60. Banks become less profitable when bond yields fall, since that lowers interest rates on mortgages and many other kinds of loans.

The Great British Pound (GBP) fell dramatically, to 1.3638 tapping a 31-year low on the day.

Other currency trading: USD fell to 102.24 from 104.47 JPY, and the EUR weakened to 1.1121 from 1.1351.

WTI Crude Oil declined 2.47, or 4.9%, to close at 47.64 bbl in New York.

Brent Crude Oil fell $2.50, or 4.9% to 48.41 bbl in London.

Nat Gas lost 0.04 to 2.66 MMBtu.

Wholesale Gasoline dropped 0.08  to 1.53 gal.

Gold spiked 59.30, or 4.7%, to 1,322.40 oz.

Silver rose 0.44, or 2.5%, to 17.79 oz

High-dividend utility companies posted slight gains.

  • NAS Comp – 6.0% YTD
  • Russell 2000 -0.7% YTD
  • S&P 500 -0.3% YTD
  • DJIA -0.1% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bearish (-0.29) Very Bearish (-0.61) Bearish (-0.33) Neutral (0.08)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Neutral (-0.20) Bearish (-0.29) Bearish (-0.40) Neutral (0.08)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Neutral (-0.23) Neutral (-0.18) Bearish (-0.48) Neutral (-0.03)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Neutral (0.14) Neutral (0.11) Bullish (0.33) Neutral (-0.04)

British citizens’ vote to leave the EU was over concerns including immigration and excessive regulation, Brussels dictated rules about about the kind of food they ate, hair dryers, teapots and toaster, the British had enough.

It is not clear what this means for international trade or for Europe, as the EU has never before lost a member state, it even paid to keep a the bankrupt socialist Greece in the bloc.

Now begins the process of Britain’s exit from the EU, and it begins about 2 years of negotiations over Britain’s trade, business and political links.

Stay tuned and have a terrific weekend.
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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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