EconMatters: GBP Collapses, Futures Crash, Oil Dives After Brexit

Friday, June 24, 2016

GBP Collapses, Futures Crash, Oil Dives After Brexit

Chart added by EconMatters

Bookies turn into goofballs as financial carnage breaks out.

The omniscient bookies, who correctly predicted the vote in the Scottish independence referendum, have always favored the Remain campaign. Despite numerous polls to the contrary over the past few days, they upped the Remain vote�s chances of victory from 60% to 82% � near certainty!

And markets drank their Kool-Aid. All of it. And it tasted soooo good.

Based on an electorate of 46.5 million people, turnout at the referendum was 72.2%, a stunning figure by US standards. At 6:40 AM London time, the Leave vote wins with 51.9%, and the Remain vote loses with 48.2%.

Chart added by EconMatters

As victory speeches of Leave campaigners ricochet across the UK and the world, it�s turning ugly for the financial markets.

The UK pound, as I�m writing this, plunged 10% against the dollar, now at $1.34!

Equity futures in Europe are getting creamed. The London FTSE futures and the German DAX futures are down about 9%. The euro falls 3.7% against the dollar.

The carnage instantly spread to Asia, particularly Japan. The Nikkei has crashed through the 15,000 level, and is now at 14,870 down a breathtaking 8.4%, which brings its year-to-date loss to over 25%! Companies that depend on exports are getting crushed.

Investors are seeking refuge in Japanese Government Bonds, which jumped, as yields dropped. The 10-year JGB yield fell to negative -0.19%, the lowest ever, and is still falling as I�m writing this. The 20-year yield is hanging on to a positive number by its fingernails, now at 0.15%, and the 30-year yield isn�t far behind at 0.16%. At this rate, they�ll all be negative soon. The yen soars 4% against the dollar.

Hong Kong�s Hang Seng is down 5%. In China, a concerted effort is underway to keep stocks from spiraling out of control. The Shanghai composite almost hit the heavily defended 2,800 level after the mid-day break, down over 2%, but then bounced off and is currently down only 1.4%. The Indian Sensex, at mid-morning trading, is down 3.5%.

And what happened to the magnificent oil rally? WTI keeps skittering lower every time I look, now at $46.86, down 6.4%.

But gold spiked 6% to $1,338, but now appears to have second thoughts.

In the US, equity futures are turning uglier by the minute. The S&P 500 futures and Nasdaq futures are both down 4.7%. This is going to be a rough open for stocks. But Treasuries skyrocket, with the 10-year yield plunging to 1.44%!

Clearly, central banks are going to try to do their magic to manipulate markets back up. They�ve prepared for this for months. They�re going to try to make things bounce. And bottom-fishers are already lining up to dive into the markets�.

This is what happens when markets believe only those soothsayers that confirm their wishful thinking. Over the past five days, stocks had rallied. Everyone brandished the bets of the bookies as proof that Brexit was toast, that the Brits would come to their senses and let go of their dreams and frustrations, and instead prop up the global markets with a resounding Remain vote. But voters turned out to have a will of their own.

Other countries in the EU now will also want their chances at an in-out referendum. The Dutch might be next. And it seems the tranquility of the past few months, and the big stock market rally it entailed in the US, might be in for a rougher ride as the future of the EU gets sorted out.

Courtesy of Wolf Richter, Wolf Street