U.S. and global markets were pummeled today following the surprise results of the Brexit vote. The Dow fell 611 points to close at 17,399 on massive volume as institutions bolted like college students when the beer runs out. The German DAX fell 6.8% while the London FTSE index fell 3.1%. The British Pound took a pounding falling to a 30 year low. The S&P 500 index is back into negative territory for the year.
US bank stocks took hits today thanks to the Brexit vote. US banks operating in Europe tend to do most of their business in London so this vote will force them to change and perhaps move to Berlin or Paris. Before they do this however they will want to make sure the place they go to will not do what Britain just did. Meanwhile the Dodd – Frank stress test results came out and all the major US banks passed with flying colors meaning they are well capitalized.
As events unfolded in Europe a slew of meetings between European leaders occurred and will continue to occur. Jean-Claude Junker, head of the European Commission drew a hard line saying that he respected the British vote and regretted to see them go but that there would be no renegotiation indicating that the deal is final. Britain is 20% of the EU economy so this is a blow to the euro union. Junker said he would work to keep the rest of the union in place even as Scotland is now talking about leaving the UK and joining the EU while other nations are talking about referendums to leave the EU. The main weakness with the EU concept was that it was a monetary union but not a political union. Years ago I had talked to a lawyer who helped draft the EU documents and he pointed out this issue and said that unless Europe could become a political union, the monetary union would fail. His observations today appear very relevant.
Gold closed the day up $59.90 an ounce to $1,323. WTI crude oil fell 4.9% to $47.63 per barrel.