MRK Merck and Co Inc

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)

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