- On June 23rd, British citizens voted roughly 52% to 48% to leave the European Union.
- Gold prices jumped 8% in response while oil fell 6% and the British pound sterling fell nearly 11% as traders fled the currency.
- Short term, we expect market volatility to pick up – Asian markets’ response and the Dow Jones Industrial Average futures swinging wildly overnight as the results came in may be a bellweather of what’s to come.
- Intermediate term, the U.K. has a lot to work out – All political accords, treaties, trade agreements and many regulations will have to be reworked, renegotiated and some started from scratch.
- Long term, the Brexit could have significant geopolitical and economic ramifications for the Eurozone – All eyes will be on the U.K. to see how they handle the separation both politically and economically.
Global markets were rocked late Thursday evening as the results poured in for the UK’s referendum on whether or not to stay in the European Union (EU). The “Brexiters” were victorious, snatching 52% of the vote and setting Britain on an historic path to leave the EU, making it the first country to ever do so.
Stock markets reacted swiftly to the news. Asian exchanges, which were open as the results came in, fell sharply with Japan’s Nikkei 225 Average down as much as 8% and China’s Shanghai Composite lower by 1.3%. European markets opened the morning off as well. As of this writing, German and French stocks are down 6.8% and 8.5%, respectively. Financial companies and banks, especially those in Europe, have been the hardest hit with some down as much as 25%. Furthermore, our domestic stock markets pointed to a Friday morning open down more than 2.5% as indicated by the Dow Jones Industrial Average and S&P 500 futures.
Investors, fleeing risky assets, poured into government bonds and gold. The German 10-year Bund fell 27 bps to close at a record low yield of -0.18%. Even US 10-year Treasuries felt the buying pressure. US 10-year bonds hit 1.5%, marking the lowest level since late 2012. Gold was also up in response, jumping nearly 5%.
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