US open: Stocks slide on Brexit fears; dollar gains more ground
US stocks opened in the red on Monday, taking their cue from heavy losses in Europe as investors continued to worry about the impact of Britain’s decision to leave the European Union.
At 1500 BST, the Dow Jones Industrial Average was down 1.2% or 207 points, the S&P 500 was 1.3% or 25 points lower and the Nasdaq was off 1.4% or 67 points.
Joshua Mahony, market analyst at IG, said: “There is little doubt that global monetary policy will have to adjust to this historic decision and with markets now pricing in a 50% chance of a July rate cut from the BoE, the idea of a rate hike appears dead in the water. Elsewhere, Friday’s flight to safety saw USDJPY hit a 31 month low, driving easing expectations from the BoJ higher once more.”
George Osborne said on Monday that the UK was ready to face the future “from a position of strength”, adding that there would be no immediate emergency Budget.
Looking to calm financial markets in his first public address since the referendum results, the Chancellor said in a statement: “Growth has been robust and employment is at a record high. Our economy is now about as strong as it could be to confront the challenge the country now faces."
After the result of the EU referendum, the Bank of England said it stood ready to provide £250bn of additional funds to support the UK’s banks.
In currency markets, the dollar was enjoying further gains on Monday as the pound slid to a fresh 31-year low against the greenback of $1.3224 – below Friday’s $1.3230.
Societe Generale strategist Kit Juckes said: “The extent of the uncertainty that now clouds the UK’s economic and political outlook is hard to exaggerate. The government is in limbo ahead of a Conservative Party leadership contest. The opposition is in chaos. The rest of the EU would like negotiations on the UK’s exit to begin but they have no-one to negotiate with.
“Uncertainty is negative for the UK economy, for investor confidence and obviously, for the pound. Sterling has now fallen by 9% against the US dollar since the eve of the UK referendum, and we look for an eventual move in GBP/USD to 1.20- 1.25.”
Bank stocks suffered the brunt of the losses; Bank of America was down 12%, JPMorgan was 3.9% weaker and Citigroup was off 2.6%.
On the data front, figures from Markit showed activity in the US services sector was unchanged this month, missing economists’ expectations.
Markit’s flash US services purchasing managers’ index came in at 51.3, undershooting estimates of 51.9. A reading above 50 indicates expansion.
Markit’s chief economist Chris Williamson said: “The survey data indicate that any rebound in the economy from the weak first quarter was largely confined to April, and that growth has since faded again. The June PMIs, which provide the first insight into national business activity in the second quarter, suggest the underlying rate of growth in the economy is only a meagre 1%.”
Oil prices were back in the red, with West Texas Intermediate down 2% at $46.67 a barrel and Brent crude 1.9% lower at $47.50.