On 06 July, 2016 – Brexit worries send stocks lower
Stocks in Asia and Europe retreated while in the US, stocks rallied.
United States
After initially declining, US stocks managed to erase losses and end the day with gains as drug and consumer companies led the way. While gaining confidence during the day, investors continued to buy safe havens keeping demand high for bonds and precious metals. The Dow Jones industrials were up 0.4 percent, the S&P gained 0.5 percent and the Nasdaq added 0.8 percent.
Drug makers AbbVie and Biogen led health care stocks higher. The two companies said that regulators in the European Union approved their drug Zinbryta, a treatment for multiple sclerosis that can be taken just once a month. Netflix retreated on a broker downgrade. An analyst said its American subscriber growth might be slower than expected. The analyst also said competition is increasing for Netflix. Other consumer stocks traded higher with shares of Amazon and CarMax rising. Nortek, which makes heating and ventilation systems for buildings, agreed to be acquired by Melrose Industries for $86 a share or $1.4 billion. Nortek stock jumped. United Continental and American Airlines retreated after a broker downgraded the two airlines.
The Federal Reserve published the minutes of its June FOMC meeting which was held on June 14 and 15 and prior to the Brexit vote. At that time, the FOMC voted unanimously to do nothing because of the cloudy economic outlook. It was the Fed’s first unanimous vote of the year. Officials disagreed about how much longer to wait before raising interest rates. The participants said that the weak May employment report increased their uncertainty about the outlook for the labor market. Most Federal Reserve policymakers agreed the UK’s referendum on its membership in the European Union had the potential to trigger global tremors that impacted the economy. Before Brexit, officials saw improvement in the global economic outlook and they remained fairly confident in the continued strength of the domestic economy. Those officials, however, continued to disagree about when to resume raising rates. The Fed raised rates in December 2015 but it has not moved since.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$15.50 to US$1,366.25. Copper futures were down 1.3 percent to US$2.16. WTI spot crude was up 80 US cents to US$47.40. Dated Brent spot crude was up 79 US cents to US$48.75. The US dollar was down against the euro, yen, Swiss franc and the Canadian and Australian dollars. However, it advanced against the pound. The Dollar Index was down 0.2 percent. The yields on both the US Treasury 30 year bond and the 10 year note slipped 1 basis point to 2.14 percent and 1.37 percent respectively.
Europe
Stocks tumbled once again. Disappointing German economic data were partly responsible for the declines but the continued uncertainty surrounding Brexit is weighing on consumer sentiment, sending investors to the security of safe havens. The FTSE was down 1.2 percent, the CAC retreated 1.9 percent, the DAX lost 1.7 percent and the SMI was 0.5 percent lower.
Insurers in the UK are now freezing withdrawals from their real estate funds. Financial stocks took a beating due to concerns over the Italian banking sector. Low interest rates and the outlook for the region are also taking their toll on shares of European banks. Energy stocks were also under pressure, as crude oil prices continue to retreat. Gold stocks were among the few bright spots Wednesday, as investors pour into safe havens. Government bonds have also experienced a surge in interest, driving bond yields even lower.
Sweden’s central bank kept its negative interest rate of minus 0.5 percent unchanged and postponed the future rate increases Wednesday. The Executive Board of the Riksbank decided to hold the repo rate unchanged and assessed that there will be a longer delay until the repo rate begins to be increased.
Deutsche Bank, Commerzbank, Crédit Agricole, BNP Paribas and Société Générale finished lower. RWE and E.ON declined. Air Liquide tumbled was lower after the company said it is targeting revenue growth of 6 to 8 percent annually over the 2016-2020 period following the Airgas acquisition. In London, property stocks such as Berkeley Group Holdings, Taylor Wimpey and Barratt Developments tumbled after M&G joined Standard Life Investments and Aviva in suspending trading on its property fund in order to meet redemptions. Aviva retreated despite promising higher dividends in 2017. Standard Life and Prudential slid. Tesco dropped after a broker downgrade. Wm Morrison Supermarkets were down. Fresnillo and Randgold Resources increased thanks to climbing gold prices. United Utilities, National Grid and Severn Trent were higher as investors piled into dividend-yielding defensive stocks as a shield against volatile markets.
May German manufacturers’ orders were unchanged both on the month and year.
Asia Pacific
Asian stocks retreated as renewed concerns about the fallout from Brexit pushed the British pound to its lowest point in 31 years and yields on government bonds to record lows as investors sought haven assets. Negative headlines related to the Italian banking system also pressured stocks.
The Shanghai Composite added 0.4 percent while the Hang Seng lost 1.2 percent. On Tuesday, China revised the method of calculating its GDP for the second time in less than a year by adding research and development (R&D) spending to better reflect the role of innovation to growth.
The Nikkei dropped 1.9 percent as the yen continued to strengthen on global risk aversion sparked by Brexit fears. Canon, Honda Motor, Mitsubishi UFJ Financial, Panasonic, Sumitomo Mitsui Financial, Nomura Holdings, Toshiba and Toyota Motor retreated. Mazda Motor tumbled on news that its joint venture in China will recall more than 74,000 sedans to replace Takata airbags. Inpex, JX Holdings, Japan Petroleum, Fast Retailing, Fanuc and SoftBank Group dropped.
The S&P/ASX was down 0.6 percent and the All Ordinaries lost 0.5 percent thanks to the economic fallout from the Brexit vote continued and Italy’s banking crisis added to political uncertainty at home. The big four banks declined along with Rio Tinto and BHP Billiton. Santos and Origin Energy were lower after US crude oil prices retreated overnight on growing worries about the outlook for the world economy and data showing increased OPEC output in June.
The Kospi dropped 1.8 percent. Both the STI and Sensex were closed for holidays.
Global Stock Markets
Looking forward
Germany and the UK post May industrial production. France releases May merchandise trade balance. The European Central Bank publishes minutes from its most recent governing council meeting. In the US, the June ADP private employment report and weekly jobless claims, EIA petroleum status report, money supply and Fed balance sheet will be reported.
*Note — all releases are listed in local time.
Source: Fidelity
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