Brexit Shock! Will the Markets Panic? In a vote that surprised a majority of analysts and market watchers, Britain elected to “Leave” the European Union in a June 23rd referendum. Global equities felt a sting in the aftermath after having rallied the day of the referendum, perhaps in an erroneous anticipation of a “Remain” victory. The British pound also fell precipitously against the dollar, in an indication that import prices for the Brits may rise substantially in the near term—potentially hurting consumers and local businesses. The question on many if not all investor’s minds now is: will this tailspin into a broader market panic/equity selloff? No one can say for sure what the answer to this will be, but we do not anticipate that this decision has the broad, systemic power to bring the entire global economy into a recession. It’s doubtful, in our view, that Europe will even experience a recession as a result of this. Markets may remain disorderly in the near term as more information surfaces about the exit plans (which Britain has up to two years to complete), how new trade negotiations will go, and whether or not we see a heavy dose of brinkmanship in the process. But, we do not believe the global markets will enter a sustained decline from here. Expect short-term volatility, and we would caution heavily against trying to time the markets.
It’s a Bird! It’s a Plane! It’s a Drone?? – the Federal Aviation Administration has issued final approved rules for how drones can be operated in the friendly skies, so expect to see more of them buzzing around at a park near you in the coming months. Amongst some of the new rules are that the mini-planes must weigh less than 55 pounds, follow a 100 mph speed limit, remain within a pilot’s line of sight, and not fly under a covered structure. In order to operate a drone, a person must be at least 16-years-old and must obtain a remote pilot certificate. It seems Drivers Ed just became Flyers and Operator’s Ed.
Rio in Trouble – with the Olympics just weeks away, the Brazilian city of Rio has essentially declared a state of emergency and has been forced to borrow close to one billion dollars from the central government. Not only does the city seem unprepared for the coming games, but its social and everyday services are becoming collateral damage in the process. Having the city ready for the Olympics is one thing, but the deep cuts to education, healthcare, and policing are the types of issues that can haunt a municipality for decades if neglected.
Oil Prices Rebound Firmly – Brent crude oil prices ticked back up above $50 a barrel this week, but hardly anyone noticed since it’s no fun to report on recovering prices (better to focus on steep declines and crises). Data released this week showed a bigger-than-expected uptick in demand as inventories fell. The firming of oil prices over the last few weeks is an indication— but not a confirmation—that the supply and demand relationship has found a balance.
Yellen Gives Two Testimonies and Adds Zero Confidence – Janet Yellen appeared before the House Financial Services Committee as well as the Senate earlier this week. As expected, she diagnosed the economy as weak but not dead and cited global concerns and concerning labor market conditions as reasons for delaying rate hikes for the time being. It’s ultimately more evidence that the Fed is at the mercy of the market and short-term data, which is unnerving for an institution whose job it is to focus on the bigger picture.
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