Last Friday’s (June 24) Sell-off in Dollar Terms – equities markets plummeted in the aftermath of the Brexit vote, with $2.08 trillion being wiped from global markets. That marked the largest ever one-day sell-off, in dollar terms, for the stock market. Treasury yields also fell as investors sought safety, and U.K. 10-year Gilts dropped below 1% for the first time ever. It all sounds and feels dreadful, but….
Stocks Rallied Just Days after the Vote – a knee-jerk reaction of liquidating a portfolio or reflexive selling would have hurt, as the market rallied some 5% over the last three days of the quarter finishing slightly positive for the three months ending June 30th. Remarkable, but also a lesson that patience in the face of market hysteria is often beneficial. Sometimes the best reaction is no reaction at all.
Is this the First Corporate Fallout of the Brexit? – the telecom company Vodafone has hinted at the possibility of shifting its headquarters out of the U.K. in light of the outcome of the Brexit vote. From a pure economic standpoint, this could actually be the right tactical move for Vodafone—a majority of its customers and employees are based outside of Britain, and more than half of its earnings come from Europe. The U.K. only accounted for 11% of its profits for this fiscal year. With relations unknown between Britain and the EU, Vodafone may be better served to go where the money’s made.
Lessons for Avoiding Corruption – it was ruled this week that Volkswagen would have to settle lawsuits in America over the scandal involving rigged diesel emissions tests. The penalty for VW is set to be a hefty $15 billion, which is $5 billion more than initially reported and is sure to hammer the balance sheet. The settlement reported VW having to pay $10 billion to buy back 475,000 “polluting” cars and $5 billion for fines and research on clean tech.
Affirming Trade Stances at the ‘Three Amigos’ Summit – as sentiment is tested over the value of trade and globalization, the three North American leaders – Enrique Pena Nieto, President Obama, and Canadian PM Justin Trudeau – will gather to reaffirm the value of the trade relationships established through NAFTA. Before the meeting, in showings of solidarity, Canada dropped its visa requirement for Mexican visitors, as of December 2016, and Mexico agreed to open its markets to Canadian beef. All three nations are participants in the Trans-Pacific Partnership talks, which has come under scrutiny of late as the election season heats up.
Oil Prices Rebound Nicely Over the Quarter – oil prices steadily rebounded over the course of the second quarter, as stockpiles fell and supply disruptions in Canada (Fort McMurray wildfires) and Nigeria helped shift the supply-demand relationship. Oil prices over the quarter rose some 30%, marking the biggest quarterly advance since 2009.
Banks Clear a Hurdle – the Fed’s first round of stress tests are now complete, and nearly all banks proved to be capitalized well enough to issue dividends or conduct share buybacks with the extra capital on hand. Two banks did fail however – Deutsche Bank and Santander – and must create an approved plan before they can engage in actions to boost shareholder equity. This is the second year in a row these banks have failed.
Disclosure