Brexit shock - 24.6.2016

US stocks were on the rise on Thursday as investors were almost sure Britain will remain in EU. Moreover, the strong US jobless claims and factory data showed the US economy was strengthening. S&P 500 index rose 1.34% to 2,113.32. Its financial sector was the top performer having added 2.1%. Dow Jones industrial average added 1.29% to 18,011.07, Nasdaq advanced 1.59% to 4,910.04. The trading volume was 6.4bn shares, just a bit below the average of 6.8bn for the recent 20 trading days. Today at 14:30 CEST the durable goods orders will come out, the tentative outlook is negative. At 16:00 CEST the University of Michigan confidence index will come out, the outlook is negative too. At 19:00 CEST the Baker Hughes oil rigs count will be released.

European stocks edged up on Thursday as advancing copper supported the miners stocks with investors expecting the Britain to stay within the EU. The pan-European STOXX EUROPE 600 and FTSEurofirst indices edged up by 0.5% each after four days of gains. UK’s FTSE 100 added 0.84%, German Dax 30 index added 1.24%, French CAC 40 advanced 1.48%. The trading was thin with trading volumes of around one third of their usual levels.

The referendum on whether UK should stay in European Union or leave took place on Thursday in Great Britain. Investors widely expected that Britons will vote to remain in EU with sterling climbing 1% to a 2016 high of almost $1.50. The trading volumes throughout the world were low as investors stayed out of the market given the Brexit uncertainty. At the same time, the safe-haven assets were on the rise. Unexpectedly, the Britons opted for Brexit, the news came out early on Friday. The market volatility sky-rocketed over the night with GBPUSD rate slumping to around $1.32 which is its 31-year low. Now it has rebounded to $1.38. The pan-European FTSEurofirst index tumbled 7.3% to 1,261.23. Banking sector in Europe fell 14.5% with UK’s Barclays, Royal Bank of Scotland and Lloyds tumbling from 16 to 20%. At the same time, insurance sector lost 12.7% and automobiles declined 10.5%. EURUSD rate plunged to 1.0912 but then rebounded to $1.1140. As a result of Brexit, the stock indices fell all over the world on Friday while safe-haven assets rose significantly. The Swiss franc soared to almost a year-high against the euro and yen. At 10:00 CEST the German Ifo released its final business climate index for Q1 and current assessment index for June, the data were positive. Today in the morning the British Prime Minister David Cameron expressed his will to step down by October 2016 saying that another person shall govern the country outside the EU.

Asian stocks slumped as well on Friday. The Chinese yuan touched its 5-year low today after Britain voted to leave the EU. Experts believe that Brexit shall not affect economic growth in China but the market volatility was heightened all over the world on the news from UK. On the other hand, Europe is one of China’s major export markets and its recession may weigh on demand on Chinese goods and yuan. The safe-haven yen has been on the rise for the whole last month with USDJPY falling 6.7% to 99.00 yen today. The pair dipped below 100 for the first time in 2.5 years but later rebounded to 103 yen. Japanese officials said they were ready to intervene in case of extreme movements in the money market.

Oil futures prices retreated on Brexit with Brent crude down by 5% to $48.38 a barrel and WTI oil down also 5% to $47.61 a barrel.

Spot gold rose 5.1% to $1,319 an ounce having previously touched the level of $1,358.20 overnight, its high since March 2014.

Copper lost 3% to $4,637.50 a tonne down from its 7-week high of $4,795 hit on Thursday.