On 27 June, 2016 – Stocks continue to tumble
While Asia’s markets steadied somewhat, European and US markets continued to tumble.
United States
US stocks followed those in Europe and the UK lower as the repercussions of the Brexit vote continued to rattle the markets. The Dow Jones industrials slid 1.5 percent, the S&P retreated 1.8 percent and Nasdaq tumbled 2.4 percent. U.S. Treasury Secretary Jack Lew said he sees no signs of a financial crisis arising from Britain’s decision, although the result does present additional “headwinds” for the US economy. The yen swung between gains and losses while the British pound plummeted to a 31-year low as investors grappled with unanswered questions on the details of Britain’s exit from the EU.
The extended sell-off came as traders continued to react negatively to the UK’s vote to leave the European Union. Investors were concerned about the economic impact of the vote and sent stocks lower. Britain is under pressure to expedite its exit from the EU in order to provide some stability to the financial markets.
Banks were pummeled as traders discounted chances the Federal Reserve will raise interest rates in the near term. Bank of America and JPMorgan were hit hard. HeartWare International soared after Medtronic said it would buy the company for about $1.1 billion. BHP Billiton retreated after the miner announced plans to increase exploration spending next year. Dick’s Sporting Goods was lower after Reuters said the retailer has submitted a bid for 17 Sports Authority stores. Quantum, Western Digital and Seagate Technology tumbled.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$9.05 to US$1,324.55. Copper futures were up 0.52 percent to US$2.12. WTI spot crude was down 95 US cents to US$46.69. Dated Brent spot crude was down 84 US cents to US$47.57. The US dollar was up against the euro, pound, Swiss franc and the Canadian and Australian dollars. However, it declined against the yen. The Dollar Index was up 0.4 percent. The yield on US Treasury 30 year bond was down 13 basis points to 2.28 percent while the yield on the 10 year note declined 10 basis points to 1.46 percent.
Europe
Stocks tumbled for a second day in the aftermath of the UK vote to leave the European Union. The uncertainty of what comes next has sent investors to safe haven assets. Financial stocks were again among the weakest performers along with British homebuilders and travel stocks. The FTSE was down 2.5 percent and the SMI lost 2.0 percent. Both the CAC and DAX retreated 3.0 percent.
Late Monday afternoon in the US, Standard & Poor’s Global Ratings cut the UK’s pristine triple-A credit rating to double-A, warning the country’s vote to leave the European Union will lead to a less predictable, stable and effective policy framework. The firm also said the vote to “remain” in Scotland and Northern Ireland creates wider constitutional issues for the country as a whole. Earlier, Chancellor of the Exchequer George Osborne in an effort to calm financial markets said the UK economy is strong enough to face the future but needs to adjust to the new situation.
Deutsche Bank and Commerzbank retreated along with Société Générale, Credit Agricole and BNP Paribas. Automakers including Volkswagen, BMW, Daimler, Peugeot and Renault also declined. In Paris, Sanofi advanced after the drug maker reached definitive agreements with Boehringer Ingelheim to swap Sanofi’s animal health business “Merial” and Boehringer Ingelheim’s consumer healthcare business. Swiss banks including Credit Suisse, UBS and Julius Baer also dropped.
In London, Foxtons Group and easyJet plunged after both warned that Britain’s referendum decision will hit their financial performance this year. Travel group TUI dropped after saying the fall in the pound would hit profits. Budget airline Ryanair and British Airways-owner International Airlines Group also plummeted. British homebuilders Barratt Development, Taylor Wimpey, Persimmon and Berkeley Group continued to suffer heavy losses. Barclays, Royal Bank of Scotland, Lloyds Banking Group, Standard Chartered and HSBC finished lower. Companies producing gold including Fresnillo and Randgold Resources however surged.
Asia Pacific
Asian stocks steadied Monday and turned in a mixed performance as investors went bargain hunting after Friday’s selloff sparked by Britain’s surprise decision to leave the European Union. However, sterling remained under selling pressure on concerns over Britain’s future as the country’s political crisis intensified and Scottish leaders pressed for a second independence referendum to remain in the European Union. While a rising yen added pressure on the Bank of Japan to expand its massive stimulus when it meets next month, the People’s Bank of China allowed the yuan to fall the most since Black Monday’s August 2015 shock devaluation.
The Shanghai Composite index rallied 1.5 percent after Premier Li Keqiang said the government has policies prepared to help it weather the bigger economic challenges ahead. The Hang Seng slipped 0.2 percent.
The Nikkei rebounded 2.4 percent after plunging 7.9 percent Friday after government officials warned again over the yen’s rise and signaled that they might intervene in currency markets. Nippon Telegraph & Telephone, Astellas Pharma, Nippon Paper Industries and Keio climbed. Sharp declined while Mazda Motor retreated on a rating downgrade. Daiwa Securities Group, Nomura Holdings, Kawasaki Industries and Nippon Steel Glass declined.
Japan’s Prime Minister Shinzo Abe issued instructions for various measures to stabilize markets according to Finance Minister Taro Aso. Abe ordered the Bank of Japan to provide funds to support the financial system and gave instructions to ensure liquidity.
Both the S&P/ASX and All Ordinaries added 0.5 percent. Commonwealth and Westpac gained as did Woolworths and Telstra. BHP Billiton rallied after saying it plans to spend A$900 million on exploration projects in copper and oil during the 2016-17 financial year. Rival Rio Tinto and Fortescue Metals Group also rallied. Gold miners Evolution, Northern Star Resources and Newcrest advanced after gold prices rose for a second day. However, Macquarie Group, QBE Insurance, BT Investment Management and Henderson Group retreated on concerns over their exposure to the UK economy.
The Kospi edged up 0.1 percent after sinking 3.1 percent on Friday. The Sensex was virtually unchanged Monday.
Global Stock Markets
Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
Looking forward*
The UK posts June CBI distributive trades report. In the US, the final estimates of first quarter gross domestic product and corporate profits will be released. May S&P Case-Shiller house price index and June consumer confidence also will be reported.
*Note — all releases are listed in local time.
Source: Fidelity
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