By Ellie Ismailidou and Sara Sjolin, MarketWatch
'Brexit' fears take over global markets; BOE, BOJ leave rates
unchanged
U.S. stocks tumbled Thursday, joining a global stock selloff
fueled by fears about next week's so-called Brexit referendum along
with concerns about slowing global economic growth.
The main benchmarks were on track for their sixth straight daily
drop and the longest losing streak since February after three
central banks across the world--the Federal Reserve, the Bank of
England and the Bank of Japan--raised concerns about the Brexit
vote.
U.K. voters head to the polls on June 23 to decide whether to
remain a member of the European Union. Economists and market
strategists say an "out" vote could instigate widespread turmoil in
global markets.
Adding to the bearish sentiment was a sharp drop in oil prices,
which weighed on the shares of energy companies. Meanwhile, the
financial sector was hit by the prospect of interest rates staying
lower for longer, following the Fed's dovish decision, which
signaled Wednesday it will delay interest rate increases
(http://www.marketwatch.com/story/downgraded-dot-plot-hints-at-longer-term-fed-worries-on-economy-2016-06-15),
demonstrating it's not overly confident in the economy.
The S&P 500 shed 18 points, or 0.9%, to 2,053, led by a 2%
drop in energy shares and a 1.2% drop in financial shares. The
utilities sector, traditionally viewed as a safety play in times of
market turmoil, was the only sector in positive territory, up
0.1%.
The Dow Jones Industrial Average lost 140 points, or 0.8%, to
17,501, led by a 2% drop in Boeing Co.(BA) and a 2% drop in Nike
Inc. (NKE). Merck & Co. Inc. (MRK) was leading the gains, up
1.5%.
The Nasdaq Composite slid 50 points, or 1%, to 4,784.
Overall the market was caught in risk-off mode Thursday, with
risk assets like equities and oil selling off worldwide, while safe
havens like gold, the yen and government bonds rallied.
"You look at bond yields and you can't help but think 'what does
the bond market know that we don't know?'" said Karyn Cavanaugh,
senior market strategist at Voya Financial.
While the 10-year Treasury yield tumbled to a 3 1/2 -year low
Thursday, the S&P was still within striking distance from its
all time high of 2,130.82, set May 21, 2015.
According to Cavanaugh, the U.S. equity market "is still holding
up" but investors should not expect a meaningful breakthrough
unless corporate earnings improve in a substantial way.
Meanwhile, investors across the world were fretting about the
potential consequences of a Brexit vote.
"Markets are in full risk-off mood after the Fed flagged Brexit
as a very real threat to growth. Low interest rates are here to
stay, and that could be it for the year," said Joe Rundle, head of
trading at ETX Capital, in a note.
Meanwhile, the Japanese central bank on Thursday made no changes
to its asset-purchase program or interest rates. The lack of action
was interpreted as caution ahead of the June 23 Brexit
referendum.
Read:Brexit fears lead Bank of Japan to leave rates unchanged
(http://www.marketwatch.com/story/brexit-fears-lead-bank-of-japan-to-leave-rates-unchanged-2016-06-15)
"Japan's decision to stand pat on rates has rattled markets,
prompting a further rush to safety that's sent the yen soaring to
fresh highs," Rundle said. "These central banks are being cautious
because of the hazards from overseas--the number one threat right
now is that Britain could leave the EU."
Asian markets slumped
(http://www.marketwatch.com/story/asian-markets-down-after-bank-of-japan-stays-pat-2016-06-15)
after the BOJ decision, while the yen rallied, reaching a two-year
high against the dollar.
(http://www.marketwatch.com/story/yen-soars-to-multi-month-highs-vs-dollar-euro-after-boj-holds-fire-2016-06-16)
On Thursday, the Bank of England also kept its key interest rate
unchanged
(http://www.marketwatch.com/story/bank-of-england-holds-key-rate-at-05-ahead-of-brexit-referendum-2016-06-16)
at a record low of 0.5% and made no changes to its
375-billion-pound ($530 billion) asset-purchase program. The BOE
said in a statement that a potential vote to leave the EU could
materially alter the outlook for output and inflation in the
U.K.
In another sign of safe-haven flows, gold continued to march
higher, to trade comfortably above the $1,300 level. Some analysts
say gold could rise to $1,400 an ounce
(http://www.marketwatch.com/story/watch-gold-jump-to-1400-if-uk-votes-to-brexit-2016-06-14)
if the U.K. chooses to ditch the European Union.
Read:Gold just scored a ticket to ride higher from Fed's Yellen
(http://www.marketwatch.com/story/gold-just-scored-a-ticket-to-ride-higher-from-janet-yellen-2016-06-15)
Other economic news: On the U.S. economic front, a flurry of
fresh data offered a mixed picture of the U.S. economy.
A reading on U.S. inflation missed expectations
(http://www.marketwatch.com/story/us-inflation-climb-02-in-may-cpi-shows-2016-06-16)
on Thursday, while initial jobless claims rose
(http://www.marketwatch.com/story/jobless-claims-rise-13000-to-277000-2016-06-16).
But rent rose at the fastest monthly pace since 2007
(http://www.marketwatch.com/story/rent-rose-at-the-fastest-pace-in-more-than-9-years-in-may-2016-06-16)last
month, a reminder that one of the biggest expenses for most
Americans isn't easing up.
The Philadelphia Fed manufacturing index
(http://www.marketwatch.com/story/philly-fed-survey-shows-mild-improvement-in-june-2016-06-16)showed
mild improvement in June, logging its second positive reading in
the past 10 months. And a closely-watched index of home builder
sentiment
(http://www.marketwatch.com/story/home-builder-sentiment-jumps-2-points-in-may-nahb-says-2016-06-16)
rose to its highest reading since January.
Movers & shakers: Drug store chain Rite Aid Corp.(RAD) fell
1.3% after the company reported a quarterly loss Thursday, missing
expectations
(http://www.marketwatch.com/story/rite-aid-misses-profit-sales-expectations-2016-06-16)
on profit and sales.
Gold-related assets were among biggest advancers premarket on
Thursday, with shares of Eldorado Gold Corp.(ELD.T) gaining 1.9%
and the Direxion Daily Gold Miners Index Bull 3x Shares(NUGT)
jumping 5.6%.
Jabil Circuit Inc. (JBL) inched lower by 0.1% after the Apple
Inc. (AAPL) supplier late Wednesday released a weak outlook
(http://www.marketwatch.com/story/jabil-shares-volatile-on-weak-fourth-quarter-outlook-2016-06-15)
for the fourth quarter.
Airbnb Inc. has signed a $1 billion debt facility deal
(http://www.marketwatch.com/story/airbnb-secures-1-billion-debt-deal-to-fund-new-services-2016-06-16)
with a group of large U.S. banks, Bloomberg reported Thursday,
citing people familiar with the matter. The home-rental company is
not a publicly traded company.
Other markets: European markets were awash in a sea of red
(http://www.marketwatch.com/story/european-stocks-fall-as-worries-about-growth-brexit-weigh-2016-06-16),
as traders grappled with the results of an influential Brexit poll
that showed
(http://www.marketwatch.com/story/pound-slumps-as-fresh-poll-shows-surge-in-brexit-support-2016-06-16)
a lead for the "leave" camp
(http://www.marketwatch.com/story/pound-slumps-as-fresh-poll-shows-surge-in-brexit-support-2016-06-16).
The dollar was mostly higher against other major currencies, but
slid against the yen.
(END) Dow Jones Newswires
June 16, 2016 10:54 ET (14:54 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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