The big news of the week is the vote in the United Kingdom (UK) concerning the continuing participation of the country in the European Union (EU). The vote yesterday known as Brexit, was 48.1% to remain and 51.9% to depart from the bloc. Voter participation in the referendum hit 72.2% of the electorate.
As a result of the Brexit vote, world equities in Asia dropped precipitously. In Japan for example, the Nikkei dropped 7.9%. In Europe, the major exchanges also fell on the news. The British FTSE 100 was down -2.46%, the French CAC 40 plunged by -6.97% and the German DAX by -6.07%. The Spanish Ibex sustained the worst daily loss in its 24 year history, with a drop in valuation of 12.35%.
In the United States, futures for the major indexes had plunged as well,but they leveled off with the Dow Jones Industrials down by just -2.75%, by mid-afternoon trading. The S&P 500 had fallen -2.93% and the NASDAQ by -3.66%. Still, the losses in the American market alone totaled $900 billion USD (United States Dollar).
London Stock Exchange
As a result of the Brexit vote, officials in the UK including the Bank of England, are willing to take the necessary steps to secure financial and monetary stability. British pound sterling fell to its lowest level since 1985, presently valued at $1.36 USD. It was the largest one day drop in history.
Also as a result of the Brexit, British Prime Minister David Cameron has resigned his post, which will become effective in October of this year.
Germany’s key benchmark 10 year bond yield is negative once again, at a new all time low of -0.17%. in the wake of the Brexit vote. The United States 10 Year Treasury Yield dropped to 1.47%, a new low. In Australia, the 10 year bond yield closed at the lowest rate ever at 1.98%.
The aforementioned, is a strong indication that central banks are losing control over monetary policy in Europe and worldwide. The European Central Bank has printed massive quantities of notes, negative interest rates, quantitative easing in the purchase of government and now corporate bonds. Yet, economic growth in the Euro-zone remains sub par.
As the second largest economy,the withdrawal of the United Kingdom from the European Union will leave Germany more influential and powerful within the bloc. At the same time, this writer predicts that within a year, similar referendums will likely be scheduled in both France and the Netherlands.
British Prime Minister Cameron
In the wake of the Brexit, data suggesting that business activity in the Euro-zone is slowing even further was released. Services and manufacturing are at a 17 month low for the month.
The European Central Bank (ECB) is now accepting Greek government debt as collateral for regular bank activities. Although this will help the cash strapped nation in lifting capital controls, the bonds are listed as junk.
The other news for the week is that the Federal Reserve Bank (Fed) the equivalent of the central bank in the United States (U.S.),will not raise interest rates in this present market environment. At the same time, the American dollar has once again become a safe haven for investors. The dollar had the largest daily increase in valuation in decades.
The Asian Infrastructure Investment Bank headquartered in China, will hold its first annual meeting with finance officials from more than 40 founding countries. It is expected that the first round of investment projects will be announced, funded through the $100 billion USD capital acquired through the founding of the institution.
Japanese exports have declined 11.3% from a year earlier. Data suggests overseas shipping is down for the 8th month in a row. Sales to China, Europe and the United States continue to slide.
The International Monetary Fund (IMF), is calling on Japan to improve its stimulus program by promoting more income and labor reforms.
Conditions in Venezuela continue to worsen. Violence is spreading with more detentions and casualties. Food riots and looting are now becoming widespread..
Gold surged above $1300 USD today once again, reaching a 2 year high of $1,331.90 an ounce. This was on the news that the referendum on Brexit, had resulted in the electorate voting to leave the European Union. Gold was listed for $1,288.00 USD last Friday.
On Friday morning, American West Texas Intermediate (WTI) oil decreased +4.65% to $47.78 USD. Prices are still $0.54 USD higher where they stood from last week. International priced Brent is down by -4.71% at $48.51 USD. This is a $0.07 USD increase in valuation from the week before.
The Investment Newsletter had 1 target fill to report this week, and 0 early stock target fills.