Today's picture is not pretty — and not likely to get much prettier. But, rest assured, it could be uglier.
Brexit stunned the world, and is in the process of stunning the financial markets in a rout that is decidedly lopsided with a lot of the pull skewed downward across the continent. The old order is crumbling, at least the old order that has been in place for three decades, and as stocks (and any asset class) hates uncertainty … welcome to bedlam.
The curious thing is that the markets aren’t down more. An hour into the U.S. trading day, the broader markets were down 2 percent. In fact, coming into the end of the session, the U.K. FTSE was down “only” 10 percent – and yet the other indices in Europe were down more in what might be sympathy. Germany was down 5 percent and Swiss stock were off 6 percent.
Digging deeper, the commodities markets are off. The oil markets were sloughed off by 4 percent (and yet gold, a haven for safety, was and is up).
The reactions worldwide thus far have been one of disbelief, and the disbelief leads to selling. But it’s not really panic selling. Yes, financial stocks are getting hard hit, predictably – and there’s irony in the real life stress test that is coming just a few hours after the mock up. Barclays is down 21 percent. The sector itself has been wiped clean of 40 billion pounds of equity value. The intraday trading had sent financial shares down 30 percent.
Sterling was down nearly 8 percent, and the yen was up 3 percent as another safe haven.
What’s coming next? Look toward central banks.
"It's an extraordinary move for financial markets and also for democracy," said co-head of portfolio investments of London-based currency specialist Millennium Global Richard Benson. "The market is pricing interest rate cuts from the big central banks and we assume there will be a global liquidity add from them."