In the aftermath of Britain voting by a 52% to 48% margin to withdrawal from the European Union in what is popularly known as Brexit, stock markets around the world plunged in response to the news.
In fact, stock futures were down so much in the U.S. this morning that it triggered a halt to trading in order to curb the carnage. International equities were absolutely hammered. Some of the highlights included the FTSE 100 in London losing 3.6%; the EURO STOXX 50 plummeted 8.4%; France’s CAC 40 lost about 8%; Japan’s Nikkei 225 slumped 7.9% overnight; Spain’s IBEX 35 tumbled an eye-opening 12%; and other indices around the world were more than 3% in the red.
Accordingly, U.S. markets are also taking a thumping, with all three major indices over 2% lower this morning. The Dow Jones Industrial Average was briefly 500 points in the red.
In total, global stocks erased more than $2 trillion in value (and counting).
One expected response to the somewhat shocking news of Britain’s departure was a huge surge in precious metal prices. The silver spot price jumped over 60¢ per ounce back to $18/oz. Meanwhile, gold prices saw gains of over $70 per ounce, settling near $1,330/oz, a fresh two-year high.
Although it’s not surprising that equities fell and gold spiked following the Brexit vote, it does seem that markets were still caught off-guard by the news. Even though it became clear that the vote would be close as we approached yesterday’s referendum, most traders and investors had not properly priced in the risk of an actual “Leave” vote coming out ahead.
The big banks were among the hardest hit by the vote for Brexit. U.K. stalwarts like Lloyds, Barclays, and the Royal Bank of Scotland (RBS) were down as much as 30% at one point in trading, while the total losses for the banking sector amounted to over $100 billion. Similarly, major U.S. banks like Goldman Sachs, JPMorgan, CitiGroup, and Bank of America lost between 6% and 7%. Many companies are pulling out of London in the wake of the vote, waiting for the situation to calm down—and new international trade agreements to be negotiated—before committing to do business in the U.K. For example, the BBC reported that Morgan Stanley is moving 2,000 of its employees from London to the mainland in Frankfurt, Germany, although the bank has disputed it is in the process of doing so.
Sterling, Parliament Take a Pounding
The currency markets were another area of the financial sector that bore the brunt of the damage. The pound sterling fell to a 31-year low, losing over 6% as confidence in the value of British assets is now highly in question. Accordingly, the dollar gained over 2% to 95.8 on the DXY index. The Japanese yen briefly touched below 100¥ per dollar during afternoon trading in Tokyo, a level not seen since 2013.
Treasury yields sank dramatically as investors sought safety from the mayhem in the markets. The 10-year T-note yield hit a four-year low of just 1.54%, which many would consider crisis levels.
Perhaps overlooked in all the financial upheaval is the fact that the future of Britain’s Parliament will now also be utterly uncertain. David Cameron has already announced that he will resign as prime minister by October. This will add to the mess by triggering new leadership elections while also bringing the Conservative Party’s ability to form a majority government into doubt. Considering that the vast majority of Parliament was in opposition to the idea of leaving the EU, it’s likely that an almost entirely new group of MPs will have to be elected.
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