Brexit Vote Trounces Global Markets

S&P 500 contract drops more than 5%, triggering trading curb

Britain’s vote to leave the European Union had a disastrous effect on the global markets on Friday, June 24th, 2016, pulling down the pound to its lowest level in more than 30 years. The Brexit vote had ramifying implications across the global financial centers, negating about $3 trillion from stock market values and triggering the demand for haven assets such as U.S. Treasuries and gold, as reported by Bloomberg. On the same day, the U.S. felt the aftershocks of Brexit as U.S. stock futures nosedived, triggering a brief trading curb, amidst mounting speculation that the exit of Britain from the European Union would have a negative impact on the global economic growth.

U1In the aftermath of Brexit, S&P 500 Index contracts slumped 4.3% on June 24th, 2016. S&P 500 futures dropped as much as 5.1%, triggering a limit-down rule. The S&P 500 turned negative for the year-to-date on June 24th, 2016, and lost all the year’s gains, declining the most since late August 2015. The S&P 500 lost 87.50 points, or 4.16%, to 2,018.25. Nine of the S&P 500’s 10 main industries slid, with financials reversing their strongest climb since April 2016 with the biggest drop since four years. Seven groups sank at least 2.8%, with industrials, technology and raw-materials posting the worst one-day drop since 2011.

U2Futures contracts on the CBOE Volatility Index soared 36.13% at the close on June 24th, 2016, after the VIX plunged the most since 2013 on June 23rd, 2016. The Brexit vote comes at a time when uncertainty already plagues U.S. stocks. At this crucial time, these are what the U.S. markets were already having to contend with: the Fed struggling to spur economic growth, the fall elections, four consecutive quarters of declining corporate profits, and price-earnings ratios that are inching to a 10-year high.

U.S. stocks plunged the most in 10 months, joining a selloff in global risk assets amid speculation that the U.K’s decision to leave the European Union would displace London as Europe’s premier financial hub. Equities sank to session lows with the Dow Jones Industrial Average sliding more than 600 points.

U3The Nasdaq Composite Index tumbled 4.1%, the most in almost five years. About 15 billion shares were traded on U.S. exchanges, more than double the daily average during the past three months. As a result of the stock markets’ turbulence, central banks were closely monitoring the markets and assured policy makers that were ready to intervene if necessary. Governor Mark Carney said the Bank of England could release billions of pounds into the financial system if needed, while the European Central Bank said it would step in to steady the market turmoil. In the U.S., policymakers foresee that exports are likely to be weaker owing to the strengthening dollar.

European stocks tumble

The Stoxx Europe 600 index tumbled 7% on June 24th, 2016, the worst since the height of the financial crisis in 2012. The volume of shares traded on the European gauge was almost four times higher than the 30-day average. The FTSE 100 index fell 3.2%, trimming an almost 8.7% decline as exporters benefitted from the plunging pound.

Eastern Europe witnessed a massive selloff, with benchmark stock indexes in Warsaw, Prague, and Istanbul declining by at least 4.1%. The MSCI Emerging Market index lost 3.6%, the most since August 2015.

Pound takes a hammering

Among the most notable moves in global financial markets, the British pound fell by as much as 11% percent to $1.3229 against the dollar to the weakest level since 1985, after the nation voted for a Brexit. U.K.’s equities tumbled, with banking stocks losing as much as 32% on June 24th, 2016. U.K. government bonds jumped on speculation that the Bank of England will ease its monetary policies to prevent the country from going into recession.

Source: Bloomberg
Source: Bloomberg

The Bloomberg Dollar Spot index jumped 1.8% even as the euro slumped 2.7%. As a result, currencies in Norway, Sweden, and Australia posted even steeper losses.

The yen soared past a milestone versus the U.S. dollar for the first time since November 2013. Japan’s currency strengthened as much as 3.7% to 102.20 per dollar on June 24th, 2016. It rallied against all 31 of its major peers as investors sought safe haven assets amidst the turmoil.

U5Europe’s corporate-bond market may be closed for weeks as investors and companies try to decipher the implications of Brexit. Overall bond sales in Europe next week may total less than five billion euros.

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