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Brexit Fallout: Collapse without Hysteria

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Monday, June 27, 2016

Futures are all down this morning following a bloody Friday in the markets. The Brexit bombshell that surprised investors late last week will continue to unfold on a massive scale, and we are seeing most metrics down again this morning, the British pound (down to a 31-year-low $1.31 to the U.S. dollar), the U.K. FTSE, German DAX, French CAC, Dow Jones, Nasdaq and S&P 500.

What’s up? You guessed it: gold, silver, copper. In short, pretty much what anyone paying attention to this issue would have predicted. The silver lining here might just be this most orderly of fall-outs since the Brexit decision was made.

U.K. Chancellor George Osbourne has commented that conservatives in his country are “prepared for whatever the future held.” Consider this a measured positive outlook, even though Osbourne did not retract from his earlier quote that Brexit will plunge Great Britain into recession and cost thousands of British jobs.

Thus, we see Dow futures roughly -175 points to start this week, following a 600 point drop Friday. We did see the Nikkei market up more than 2% overnight as the yen climbed against both the pound and U.S. dollar. But it will likely take at least until the end of this week to potentially change the narrative from continued negative fallout, at least in the U.S.

What’s at the end of this week? BLS non-farm payroll results for June. Remember, last month’s jobs tally was so bad it took the Fed’s possible decision to raise interest rates another quarter point to take it off the table. (By the way, Brexit now looks to have taken an interest rate increase off the table for the rest of the summer, if not the rest of 2016.) But if we happen to see a jobs correction to the positive as big as we saw to the negative for May jobs numbers, this may be something to build on.

Not that near-term reports on anything will have the capacity to capture the Brexit fallout anytime soon. At this point, British banks are being crushed, as expected: Barclays (BCS - Free Report) -23%, Royal Bank of Scotland -20%, Deutsche Bank (DB - Free Report) -8.2% and Credit Suisse -9.7%.

But the orderliness of the fallout is certainly better than what might have been a more hysterical reaction to the Brexit, which would have made the near-term carnage more bloody. Besides Osbourne’s measured comments, U.S. Treasury Secretary Jack Lew also sees the immediate reaction to have been orderly so far, and he said the tools are in place to manage the Brexit aftermath.

Mark Vickery
Senior Editor


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