Equity bulls or most longer-term market participants might be pining for an early weekend Friday, after the aftershocks of last night’s landmark Brexit vote have unleashed a wave of volatility and drama that is en route to US markets. Months of naysayers and doomsday predictions will certainly be put to the test today – while the markets won’t be collapsing in upheaval, US exchanges could be facing a day not seen since the depth of the US financial crisis in 2008.
Reading the Tea Leaves
If the Asian and European markets are any indication, US indices such as the Nasdaq and S&P500 are in for a sea of red. With the GBP and anything related to the instrument being taken to the woodshed Friday, markets moved universally lower as panic set in by AM trading across Asia. Perhaps the only beneficiaries were strong safe haven currencies and assets such as gold, which spiked north of $1300 earlier today and has stabilized above the key threshold.
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US Stock futures were lower by over -3.0% Friday ahead of the opening during pre-market trading, with S&P500 futures and Nasdaq futures leading the decline of -3.9%. While the US economy in the interim is unlikely to suffer from a UK schism with Europe, there are many long reaching ramifications, such as the Fed’s interest rate policy that is sure to see its talk of rate hikes cool for the duration of the summer.
Investors running for the trenches were also greeted by the abrupt resignation of UK Prime Minister, David Cameron, who ironically had championed the referendum vote itself in an attempt to foster unity. The aggregate effect of the UK’s future, as well as the prospect of a rudderless economy, seldom elicits calm, especially with so many unforeseen variables heading into the weekend.
It remains to be seen how effectively markets have priced in this event in the US, though historically speaking bad news not overtly linked to the US has a way of evening out in the longer term. Unlike the country’s House of Representatives, its unlikely US traders and market participants can just call an early July 4 vacation and hide from the Brexit convulsions.