On June 24, 2016, Brexit verdict eroded $2 trillion from the global stock markets. Major US indices, the Dow Jones Industrial Average (INDEXDJX:.DJI), S&P (INDEXSP: .INX), and the Nasdaq Composite (INDEXNASDAQ: .IXIC) fell 3.4%, 3.6% and 4.12% during the day. Amongst the European stock exchanges CAC ((INDEXEURO: PX1) dropped 8% during the day while London’s FTSE (INDEXFTSE: UKX) and Frankfurt’s GDAXI (INDEXDB: DAX) lost nearly 3% and 6.8%, respectively.
US markets recovered post Brexit decline
However, the sentiments were seen to improve as the Brexit verdict seemed to have found acceptance and offered lucrative entry opportunity for bargain investors across the globe. Thus, the buying momentum fuelled by improved investor sentiments provided the support required by the stock markets to get back on track especially the US and the European stock markets. Dow Jones Industrial Average (INDEXDJX: .DJI) rallied over 2.5% from June 27 to July 05, 2016 while NASDAQ Composite (INDEXNASDAQ: .IXIC) surged over 2.4% for the same period.
Dow Jones U.S. Oil & Gas Index (INDEXDJX: DJUSEN) rallied over 3.4% from June 27 to July 05, 2016 but fell over 2.08% on July 05, 2016 due to revamped fears of Britain’s exit impact on European Union. But, Dow Jones U.S. Health Care Index (INDEXDJX: DJUSHC) recovered 3.8% from June 27 to July 05, 2016 as investors were seeking for safe investments to beat the volatility. Dow Jones U.S. Utilities Index (INDEXDJX: DJUSUT) and Dow Jones U.S. Technology Index (INDEXDJX: DJUSTC) rallied over 4.6% and 1.7% respectively (as of July 05, 2016).
Impact of the Brexit on the American economy continues to be among major worries for American investors. With current job market hampering, the US economy recovery, and chances of an interest rate hike this year, investors need to be cautiously positioned in the markets this year.
Volatility continues in the European markets
CAC 40(INDEXEURO: PX1) and DAX PERFORMANCE-INDEX (INDEXDB: DAX) recovered over 6.3% and 4.75% from June 28 to July 04, 2016, but both fell over 1.8% on July 05 due to revamped Brexit fears which would lead to more than estimated economic impact. Recently, Governor of the Bank of England commented that further economic stimulus might be required in the coming months to revamp the situation. Italian banks are also under pressure with Credit quality under pressure while European Central Bank (ECB) sent a letter to Monte Paschi. Moreover, European Commission commented that Italy should not use Brexit event to rescue banks. Several banks and firms having exposure in Europe across the globe have been under pressure post the Brexit event.
UK has ruled out a second referendum on the Brexit and is currently focusing on creating a successful treaty on its exit from the EU. UK has taken its first step in creating a treaty on its exit by taking part in their first meeting with EU officials in Brussels. But apart from Political worries, concerns regarding the survival of the small banks would add to the market volatility in the coming weeks. The Brexit could trigger the various European central banks to cut interest rates by margins while interest rates hit the negative territory.
GDP Share (Source: Financial Times)
Currency and Commodity developments
Gold had delivered an outstanding rally recently as investors have been seeking for safe haven assets. On June 29, 2016, US Dollar Index – Sep 16 (DXU6) fell 0.54% on the speculation that the policy makers would take steps to ensure global growth is not affected by Brexit. But the US Dollar Index rallied 0.59% on Jul 05, 2016 due to revamped Brexit fears. With regards to the oil movements, Crude Oil Futures – Aug 16 (CLQ6) surged over 3.28% and 4.24% on June 28 and 29, 2016 supported by more than expected decline in the US crude inventories, potential strike by oil workers in Norway, and crisis in Venezuela’s Energy sector. Amongst the currencies, EUR/USD rose over 0.36% and 0.53% on June 28 and 29, 2016, but fell over -0.82% and -0.07% on July 05 and July 06, 2016 (as of July 06, 2016) given the second wave of Brexit.
Meanwhile, Barack Obama insisted that solidarity between the US and Europe will not be affected by Brexit at the recent Nato summit. The economic growth would now be crucial to track given the jitters post Brexit outcome.
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