WASHINGTON, June 24, 2016 – As we write this on Friday at 7 a.m., traders and investors—or at least those who weren’t up all night—are waking up to the news that, contrary to polling data and late bookmaking odds in London, U,K, voters have decisively voted to leave the European Union (EU), a process that’s become popularly known as the “Brexit” (British Exit).
Zero Hedge has just posted an excellent, brief summation of the resulting turmoil in world financial markets:
European, Asian stocks and S&P futures plummet, as U.K. votes to leave European Union membership. FX carry trades everywhere go haywire, with the Dollar and Yen spiking while the Cable [U.K. Pound Sterling/U.S. Dollar pairing] overnight plunged to 30 year lows and at last check was trading just around 1.37, down 1,300 pips [$0.0001, or one basis point] from yesterday’s highs. A modest rebound was experienced when first the Bank of England and shortly after all other central banks promised to pump virtually unlimited liquidity into the financial system. Ironically, all of this takes place a day after Fed’s stress tests showing all 33 banks exceed minimum requirements — we may find out just how ‘unstressed’ they are as soon as today.
For those who are pressed for time, the following quote from James Butterfill, head of research and investments at ETF Securities, summarized it best: ‘It’s scary, and I’ve never seen anything like it. We’re going to see outflows from basically any kind of cyclical asset. A lot of people were caught out, and many investors will lose a lot of money.’”
(Definitions of terms in square brackets above supplied by this columnist. Bold text by Zero Hedge.)
The stunning U.K. vote is already having consequences, as U.K. Prime Minister David Cameron has already resigned, leaving the aftermath of the Brexit vote to a successor as yet unnamed. We’ll have much more to say in a future column about how wealthy elites attempted to game both polling and bookmaking odds to thwart the pro-Brexit vote. We’ve been nervous about this possibility for at least a week, and Thursday’s vote seems to have proven the point. The unofficial final tally as we write this favored “Leave” over “Remain” by 51.89 percent to 48.11 percent.
This seemingly amazing but not really surprising turn of events can largely be attributed to the average U.K. citizen’s utter disgust at Britain’s eroding national sovereignty as part of the EU, as perhaps best-exemplified by the overwhelming number of often hostile immigrants that have been flooding the zone, imperiling native-born and legal citizens’ culture and way of life.
The U.K. move will likely also give encouragement to strong pro-exit sentiments in France, Italy, Sweden and other countries that find themselves plagued with similar economic problems that are worsening by the day, exacerbated by the tsunami of immigrants who have no intention of being assimilated into their new countries. It also helps explain the twin phenomena of Donald Trump and Bernie Sanders in this year’s U.S. presidential election campaign. Worldwide, the peasants are beginning to revolt against the imposition of Feudalism 2.0 and the game has only just begun.
As the world turns, international markets begin trading, and the news has not been good thus far. Some Asian markets are down hard with Japan’s Nikkei 225 down as much as 8 percent at one point. European markets all opened down hard, although trading is still underway and final numbers for Friday are still uncertain.
The British pound, as Zero notes, is down sharply against the U.S. dollar, hitting its lowest point in this pair trade in recent memory. As at least a partial consequence, the euro itself is off a full 2 U.S. cents, a considerable move down given that currencies usually fluctuate daily only in tenths or thousandths of a dollar.
As the cascade of consequences continues, oil benchmarks like British Brent crude and U.S. West Texas Intermediate have also taken a hit, with both down in the neighborhood of $2 bbl. after getting off to a poor start earlier this week.
The swirling chaos caused by the pro-Brexit vote will hit Wall Street like a tsunami at this morning’s opening bell, which rings at 9:30 a.m. U.S. pre-market futures are fluctuating wildly as of this writing and are currently off at least 546 Dow points, indicating an initial down-move of 3-5 percent. S&P 500 and NASDAQ futures are also getting hit hard, and pre-market trading is bound to get bloody.
It’s hard to say where things will end up in U.S. markets today. Central banks around the world are making soothing public statements about making plenty of liquidity available under these conditions. But eight years after the opening blast of the worldwide Great Recession, no one but the wealthy and government and banking elites is better off, and central bureaucracies have little credibility left at this point, meaning that a close deep in the red for Wall Street today is a virtual certainty. Next week will be anybody’s guess.
As is the usual case, the Maven is slated to depart for a weeklong summer vacation later this morning, a seemingly innocent act that, for whatever reason, tends to coincide with major market disasters. Departure this morning will likely be delayed somewhat by some quick portfolio moves, so we’ll fire off another brief update column before we head off to Cleveland, Ohio where, in July, we expect the next market-moving cataclysm will take place.