By Anora Mahmudova and Mark DeCambre, MarketWatch
Pound sinks 10% vs. dollar, gold rallies
U.S. stocks were off the lows, but were still trading sharply
lower, Friday after the U.K. declared its intention to end its
four-decade relationship with the European Union after a so-called
Brexit vote.
Investors are fretting that the unprecedented decision to leave
the bloc could destabilize Europe's fragile union.
The stunning moves come after global markets rallied a day
earlier on a bet that Britons would vote to reject Brexit.
On Friday, the S&P 500 dropped 43 points, or 2.1% to 2,069,
with nine of the 10 main sectors trading sharply lower. Financials
and technology stocks were leading the losses.
The Dow plunged 374 points, or 2%, to 17,648, with nearly all 30
blue-chip stocks trading lower, led by bank stocks. J.P. Morgan
Chase & Co., (JPM) dropped 4.2% and Goldman Sachs Group Inc,
(GS) declined 5.5%. Utilities stocks were trading higher due to
heightened demand for safer, defensive plays.
Meanwhile, the Nasdaq Composite Index tumbled 118 points, or
2.4%, to 4,790.
"The market was pricing in a different outcome yesterday even
when the odds were too close to call and within a margin of error.
The unexpected outcome is shaking up markets," said Ben Carlson,
money manager at Ritholtz Wealth Management.
The Brexit vote will have wide implication for monetary policy
round the globe, according to analysts. On Tuesday, Federal Reserve
Chairwoman Janet Yellen, in her congressional testimony, said that
"a U.K. vote to exit the European Union could have significant
economic repercussions." She also noted that such risk would
warrant more cautious approach to normalizing interest rates.
"The vote will definitely make it very difficult for the
[Federal Reserve] to raise rates this year, and in fact the futures
are currently giving better chances of a rate cut in the U.S. than
a rate increase. Lower for longer is what we continue to
expect--the global economy is going to face lower growth prospects
and rates are therefore going to be kept lower for longer," said
Chris Gaffney, president at EverBank World Markets.
On Friday, the Fed said it is prepared to provide dollar
liquidity through its existing swap lines with central banks, as
necessary, to address pressures in global funding markets, which
could have adverse implications for the U.S. economy.
European stock-market indexes were being punished in the
aftermath of the vote, with the Stoxx Europe 600 skidding 5.6% at
326.75.
But moves in currencies, in particular, the British pound
(http://www.marketwatch.com/story/pound-bounces-sharply-as-brexit-results-come-in-2016-06-23)
were the most pronounced. Sterling hit a low of $1.3230, a more
than 12% plunge from $1.4871 late Thursday in New York. But it has
since recovered somewhat, trading most recently at $1.3775.
Read:Soros looks set to make a killing on Brexit result
(http://www.marketwatch.com/story/soros-looks-set-to-make-a-killing-on-brexit-result-2016-06-24)
The victory by the "leave" vote sets up global markets for the
most volatile and frightening trading day since the market sank
last August on fears about a slowdown in China's stock market.
Read:'Panic' and 'bloodbath'--analysts react to U.K.'s decision
to Brexit
(http://www.marketwatch.com/story/panic-and-bloodbath-analysts-react-to-uks-decision-to-brexit-2016-06-24)
In the wake of the shocking Brexit vote, U.K. Prime Minister
David Cameron said Friday morning he will resign
(http://www.marketwatch.com/story/uk-prime-minister-david-cameron-resigns-after-brexit-vote-2016-06-24).
Cameron has been campaigning for the "remain" camp.
In other assets:Gold
(http://www.marketwatch.com/story/brexit-result-sends-gold-futures-surging-to-2-year-high-2016-06-24)
surged more than $70, but was most recently up $57.90, or 4.5%, to
$1,319.5 and yields on the benchmark 10-year U.S. Treasury fell to
1.58% as investors flocked to safety.
"'Leave' opens a period of lasting uncertainty," said Torsten
Slock, chief international economist at Deutsche Bank, in a
research note late Thursday.
"We think it will be three years before a new UK-EU deal is
settled. Politics will determine the long-term cost. A 'leap
forward' for European integration is unlikely," he said.
On the data front: Economic releases in the U.S. have been
overshadowed by the Brexit vote. Market reaction to durable-goods
orders was muted. Consumer sentiment sank to 93.5 in June,
according University of Michigan.
Corporates:Newmont Mining Corp.(NEM) was up 7%, following a
historic jump in gold prices to the highest level in two years.
But the vast majority of the S&P 500 stocks were tumbling,
however. Banking stocks were hit the hardest. Citigroup Inc. (C)
was down 7.9%, Morgan Stanley(MS) down 8.2%, Bank of America Corp.
(BAC) tumbled 6%.
Oil companies were among the biggest losers. Chesapeake Energy
Corp.(CHK) was down 4.7%, Transocean Ltd.(RIG) fell 4.9%.
(END) Dow Jones Newswires
June 24, 2016 10:21 ET (14:21 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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