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JLN Financials: Brexit sparked biggest 1-day global stock rout ever; Odey and Soros make big wins on Brexit vote; S&P strips UK of last top-notch credit rating after Brexit vote

First Impressions

Good Evening
By John J. Lothian

Good evening! I say that with all earnestness.

Friday the world changed, or so it seemed. Brexit happened, markets fell and journalists went to work to cover this story from every conceivable angle. The newsletter below is an aggregation of that news. You will find only two stories on the LSE-Deutsche Boerse merger and the CME Group did something in Palm risk management. There are a few other non-Brexit stories, but they were hard to come by.

Lots of rich people lost money, but so did poor people; they just don’t have as good portfolio measurement tools to show them their balances. It was the $2.08 billion dollar loss in the global equity markets that garnered a headline below.

Our friends at the FIA have set up a Brexit page on their website here

Changing themes from global financial destruction to building for the future, please sign up your interns and newer employees for our MarketsWiki Education World of Opportunity series in Chicago and New York. Please help get the word out. A recommendation from an experienced colleague or supervisor goes a long way.

We have added the lineups of speakers for each session in Chicago to the event page

We are asking you to Tell The Story about our industry and help recruit the next generation of market participants and professionals. After Friday’s action, you should have no problem telling stories.

Quote of the Day

“As of now, this doesn’t look like an end-of-the-world event. It looks bad, but it’s not a cataclysmic game-changer similar to Lehman. Yet.”

Ian Shepherdson, chief economist at Pantheon Macroeconomics in the story, “After ‘Brexit’ Vote, Investors Are Gripped by a Panic Last Seen in 2008”

Lead Stories

Brexit sparked biggest 1-day global stock rout ever
MarketWatch
The carnage Friday following Britain’s vote to leave the European Union was the worst on record, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
on.mktw.net/2963pM9

Odey and Soros make big wins on Brexit vote
Investment Week
Hedge funds, including prominent leave supporter Crispin Odey, have made millions from the UK’s decision to leave the European Union after taking short equity positions and backing safe havens like gold ahead of the vote.
bit.ly/29hEmlg

S&P strips UK of last top-notch credit rating after Brexit vote
Reuters
Ratings agency Standard & Poor’s stripped Britain of its last remaining top-notch credit rating on Monday, slashing it by two notches from AAA and warning more downgrades could follow after Britons voted to leave the European Union last week.
reut.rs/29hM9zh

Fitch cuts UK credit rating by one notch to AA after Brexit vote
Reuters
Fitch Ratings cut Britain’s credit rating on Monday and warned more downgrades could follow, joining Standard & Poor’s in judging that last week’s vote to leave the European Union will hurt the economy.
reut.rs/29hLJJg

‘Brexit’ Is Locking In the Forces That Already Haunt the Global Economy
NY Times
Sometimes, something bad happens and it creates huge financial market swings and long economic ripples. The Sept. 11 terrorist attacks were an example, as was the 2011 Japanese nuclear disaster.
But “Brexit” is different.
nyti.ms/295T9mQ

Why Some Big Insurers Lack ‘Brexit’ Cover
WSJ
Just like the financial crisis, Brexit threatens to deliver a one-two punch to the finance industry.
Banks and financial markets take the first blow; the second lands on insurers and fund managers as owners of stocks and bonds. Both have suffered big stock price falls in the past two days as investors anticipated this.
on.wsj.com/29hMClh

After ‘Brexit’ Vote, Investors Are Gripped by a Panic Last Seen in 2008
NY Times
First came the shock. Then fear seized world markets. As frenzied selling accelerated in Tokyo, Hong Kong and London, unfathomable amounts of wealth vanished in a matter of hours.
In crudest outlines, the panic that followed Britain’s vote to quit the European Union traced the 2008 collapse of Lehman Brothers, an event that turned an unfolding financial crisis into the bleakest economic downturn since the Great Depression. The similarities hung uneasily over markets on Friday, presenting a grim question: How ugly might things get?
nyti.ms/295X4A6

This Is Just the Start of the Brexit’s Economic Disaster
NY Times
A few weeks before Britons voted on whether to remain part of the European Union, Michael Gove, one of the leaders of the Leave campaign, was asked why he should be trusted over the overwhelming number of economists and international authorities who opposed Brexit. “People in this country have had enough of experts,” he replied.
nyti.ms/295Xerc

Gross Says U.S. Recession Odds May Be 30% to 50% Post-Brexit
Bloomberg
The odds of a U.S. recession may be as high as 50 percent following last week’s vote in the U.K. to exit the European Union, according to Bill Gross, manager of the Janus Global Unconstrained Bond Fund.
bloom.bg/29607bq

U.S. banks’ stress tests may offer comfort in Brexit tumult
Reuters
The stress tests created for banks by U.S. regulators after the 2008 financial crisis may prove their worth this week, providing a timely message on banks’ hardiness in the midst of turbulence over last week’s vote by Britain to leave the European Union.
reut.rs/29hM7Yd

Banks pull stocks lower as Brexit continues global rout
Reuters
Britain’s shock vote to leave the European Union roiled global markets for a second day on Monday, hammering U.S. and European banks, lifting bond and gold prices, and dragging the British pound to a 31-year low.
U.S. stocks were sharply lower, following European markets, pulled down by banking stocks amid uncertainty over London’s future as the region’s financial capital.
reut.rs/29hMFxh

Central Banks

Yellen and Carney pull out of ECB conference
Financial Times
The heads of the Bank of England and the US Federal Reserve have pulled out of the European Central Bank’s flagship economics conference this week, which will still likely be attended by Mario Draghi.
on.ft.com/29hFAww

Fed Will Eye Dollar and Bond Yields for Signs of Deeper Trouble
Bloomberg
Federal Reserve Chair Janet Yellen skipped out of an engagement in Europe to jet back home, the Fed said Monday, a sign the U.S. central bank is on high alert amid financial market turmoil following Britain’s vote to leave the European Union.
bloom.bg/2960Qtr

Are central banks ‘powerless’ to handle Brexit fallout?
CNN Money
But this time, it appears they might not have an answer — or an audience — following Brexit and its fallout.
It’s a key shift. Since the global financial crisis, central banks have led the rescue effort for nearly every major economic or financial shocker. From extra low interest rates to buying bonds to communicating super sensitive information in a timely manner — central banks have pulled out all the stops. And global investors have held on to their every word.
cnnmon.ie/29hPmyX

Draghi Says Sadness Best Describes Sentiment on U.K.’s Brexit
Bloomberg
European Central Bank President Mario Draghi set a melancholic tone over the U.K.’s decision to leave the European Union.
“I try to find the word which describes our feelings,” he said at the opening of the ECB’s annual forum on Monday in Sintra, Portugal. “Probably the best word would be sadness.”
bloom.bg/2960HGs

The Fed’s lack of diversity is hurting its judgement
CNBC
Federal Reserve Chair Janet Yellen found herself in the hot seat at the recent bi-annual Humphrey Hawkins testimony as members of Congress challenged her over the lack of diversity among the Fed’s ranks.
cnb.cx/29hQ67c

Currencies

Sterling dips below Friday’s 31-year low amid Brexit uncertainty
CNBC
Currency markets faced more upheaval on Monday, with traders raining new pain on Britain’s pound and the yuan falling to a nearly six-year low against the dollar. This followed a weekend of contemplation after the Brexit vote, which failed to alleviate political and economic uncertainty.
cnb.cx/29hQyT5

How China’s yuan could be the currency whipping boy of Brexit
MarketWatch
Given its limited exposure to Europe, China should have been well-positioned to weather the upheaval after British voters dramatically decided to quit the European Union last week. But the Asian country is finding itself at the center of currency market volatility as renewed strength in the U.S. dollar stoked expectations for a sharp depreciation in the yuan.
on.mktw.net/29hQrXq

Boris Johnson, Future PM and Currency Analyst?
Bloomberg
The mystery of how Boris Johnson spent the weekend has been solved. While his allies in the Brexit campaign have been defending, if occasionally rolling back, their pre-referendum pledges in a series of TV interviews, the man seen as most likely to succeed David Cameron as leader of the Conservative Party remained conspicuously silent.
bloom.bg/29hQUci

‘Brexit’ and China: Currency Calculus Just Got More Complicated
WSJ
On first blush, Chinese markets have gotten through the U.K.’s vote to leave the European Union relatively unscathed. But “Brexit” will eventually put Beijing to the test.
on.wsj.com/28X0Cjp

Japan PM Abe tells finance minister to take needed FX steps post-Brexit vote
Reuters
Japanese Prime Minister Shinzo Abe on Monday instructed Finance Minister Taro Aso to watch currency markets “ever more closely” and take steps if necessary, in the wake of Britain’s historic vote to leave the European Union.
reut.rs/29hMke9

Indexes & Index Products

Dow closes down more than 250 points at lowest since mid-March
CNBC
U.S. stocks closed about 1.5 percent lower or more Monday, extending Friday’s post-Brexit sell-off with materials leading decliners. The Dow Jones industrial average and S&P 500 ended at their lowest since mid-March.
cnb.cx/2962NGd

Brexit Is a Boon for Volatility Traders
WSJ
The havoc unleashed by Britain’s vote to leave the European Union has benefited some investors: volatility traders.
The U.S. stock market’s swoon Friday and Monday, after Thursday’s Brexit vote, sent the CBOE Volatility Index, or VIX, to a four-month high.
on.wsj.com/2964fs6

Why Index Fund Investing Isn’t Always the Answer
Fortune
Investment guides are as numerous as swallows. Very few have lasting appeal, because most are written under the influence of whatever is the pervasive market trend or approach of the day.
This is one explanation for the extraordinary endurance of what is still the best investment guide, Security Analysis, written by Benjamin Graham and David Dodd and published in 1934. Graham, the primary author, then an obscure professor and money manager, chose the Great Depression as the time to assert his faith in patient security analysis and long-term investing. Given that the market was in the throes of an epochal collapse, very few folks were interested in investing.
for.tn/2964d3m

Osborne calms markets as FTSE 100 only down 0.8% in early trading; Decision delayed on Emergency Budget
Investment Week
Yields on benchmark US 10-year treasuries fell by 7.3 basis points to 1.487%, which is their lowest level since August 2012.
The rush for safe havens also saw 10-year gilt yields drop below 1% for the first time ever in their history, sliding to 0.93% by 10.30 this morning.
bit.ly/295SmlX

Gold ETFs Shine on Brexit Woes – June 27, 2016
Zacks
Time and again, gold has been a safe harbor when uncertainties loom. The weakness in the global financial markets had helped gold to recover its sheen in 2016. A tumultuous global economy including pressing growth issues and the global oil market turbulence lifted its safe-haven demand (read: Gold ETF Investing: 10 Facts Investors Need to Know).
bit.ly/2964kvX

Gold

Investors Keep Piling Into Gold Funds
MoneyBeat – WSJ
As the price of gold has soared, funds that track the precious metal are also reaching new heights.
The two largest gold funds, SPDR Gold Trust and iShares Gold Trust, now own more physical gold combined than all but seven nations, according to analysis from Convergex. With about 1,037 metric tons altogether, the amount of gold in the two funds outpaces reserves of notable holders such as the European Central Bank and Saudi Arabia.
on.wsj.com/29641RV

Should You Buy Treasury Bonds, Gold, Utility Stocks on Brexit?
The Street
Investors want safety now. But how should they go about finding it?
The yield on the 30-year U.S. bond rose to 2.563% on June 23 as citizens of the United Kingdom were voting to stay or leave the European Union. Odds of staying were good, so when the “leave” vote beat the “stay” vote by four percentage points, the bond yield declined to a 52-week low of 2.280% overnight. That nearly tested my downside target for 2016 of 2.265%. This week’s pivot is 2.374%.
bit.ly/2964ofh

Big GLD Inflows Suggest Gold Will Continue To Strengthen – SPDR Gold Trust ETF (NYSEARCA:GLD)
Seeking Alpha
One of the features of investment money flows so far this year has been the enormous flows of gold into the world’s major gold ETFs. This has been exemplified by the biggest of them all – the SPDR Gold Trust ETF (NYSEARCA:GLD) – which has taken just under 300 tonnes of gold into its vaults since the beginning of the year. Indeed at the recent rate it may well have exceeded 300 tonnes by the time you get to read this article.
bit.ly/2964P9n

Barrick Gold: Brexit is a Gold Miner’s Best Friend – Stocks to Watch
Barron’s
For gold bugs, the Brexit vote has been mana from heaven. And for gold miners like Barrick Gold (ABX) and Newmont Mining (NEM), it’s just what they needed to extend their recent advances. Goldman Sachs analyst Andrew Quail and team explain why:
on.barrons.com/2964XFT

Miscellaneous

Brexit Casts Uncertainty on Art Market
NY Times
As the world’s leading auction houses prepared for their big-ticket contemporary sales in London this week, the question was on everybody’s mind: What will the shock and confusion following Britain’s vote to leave the European Union — not to mention the plunging world financial markets — mean for the art market?
nyti.ms/295Tx4Y

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About Author

Bergstrom is chief information officer of John J. Lothian & Co. He edits MarketsWiki and JLN Options.