“What is the EU?” — Second most popular Google search in the UK after the EU referendum results. Over 17 million Brits voted in favor of the Brexit, but apparently many of them didn’t know what the heck they were voting for.
MARKET SNAPSHOT
Big Picture
- Brace yourselves, because no markets were safe on Friday from the Brexit fallout, with the Dow suffering its eighth-largest loss in history and U.S. marketsturning negative for 2016
- Overseas markets were hit even harder: London stocks initially opened down 9% but recovered to close down 3%, while Germany was down 7% and France down 8%—oh, and English banks fell around 20% across the board
Alternatives to Watch
- Currency markets felt the largest impact from the Brexit: the British pound dropped 10% against the dollar to its lowest level since 1985…yikes
- If you somehow saw this event coming and loaded up on gold, you were in luck on Friday, as the safe haven commodity leapt 8% to its highest level in two years
CORPORATE PRIMER
If You Aren’t Wearing Skullcandy
…It’s not too late. Let’s take a quick break from Brexit to note that over the weekend, Incipio bought out Skullcandy for $177 million—creating a superpower for headphones in the music industry. Incipio makes a variety of accessories and cases for phones and tablets, while you probably know Skullcandy for its over-the-top headphones (just look at these). Worried for the future of your favorite affordable, yet stylish headphone brand? Don’t. With Incipio growing its market presence through an acquisition spree over the last year, expect to see more of your friends repping Skullcandy, and if we’re lucky, maybe with a cross-pollinated Incipio twist.
WORLD MACRO
So Britain Wants to Leave
…Now what? For starters, Britain isn’t officially divorced from the EU. First, it must trigger Article 50 of the Treaty of Lisbon, which puts the formal process in motion for exiting the EU. Soon-to-be-former Prime Minister David Cameron won’t be triggering it, but his successor will, likely after October. Then, the UK will have up to two years to formally leave the bloc…and although the EU wants this over with ASAP, it very well could take that long. After all, Britain has to negotiate such riveting issues as financial regulations, trade tariffs and how immigration is going to work for EU citizens and Britons. Fun stuff. But hey, this is what the people wanted (or at least the ones that didn’t immediately have second thoughts).
Brexit’s “Should I Stay or Should I Go”
…Has turned into “should I hike or should I cut” for the Fed. Buckle up loyal Brewers, it’s another interest rate hike piece. In the aftermath of the Brexit craziness, the futures market is now implying that not only is there a snowball’s chance in hell the Fed hikes at the next meeting, but there’s actually a 5% chance it will cut rates. In fact, there’s only a 10% chance 2016 sees a rate hike at all. So the golden question—how does Brexit affect American businesses and the U.S. economy? Things don’t look great: expect to see the dollar continue to strengthen, which will lower profits for multinationals that have UK exposure. We may also see lower demand for U.S. goods from a potentially recession-stricken Europe. But look on the bright side: a vacation in London is looking pretty affordable.
Central Banks Have Some Decisions to Make
…And the Fed isn’t the only one. Economic leaders across the world have already begun to take action to mitigate Brexit’s impact. The Swiss central bank confirmedthat it had already intervened to weaken the Swiss franc after the currency had its largest single-day jump in 18 months. Similarly, the Bank of Japan hinted that it would stabilize and hold down the yen if necessary. Even the Bank of England’s President, Mark Carney, said that he was ready to allocate $345 billion to stem any uncertainty. The impact of Brexit has yet to be fully felt, but it’s clear banks are ready to spring into action.
OTHER STORIES
- $5 billion Panama Canal expansion opens
- Facebook, Google automatically blocking extremist content
- TransCanada files $15 billion suit over Keystone XL rejection
- O.J. Simpson’s attorney files for bankruptcy
ECONOMIC CALENDAR
- Monday: International Trade
- Tuesday: Nike, Carnival Earnings: U.S. Q1 GDP (3rd Estimate)
- Wednesday: Monsanto, General Mills Earnings; Personal Income and Outlays
- Thursday: Constellation Brands, ConAgra, Micron, Darden Restaurants Earnings; Weekly Jobless Claims
- Friday: ISM Manufacturing Index; June Auto Sales; Construction Spending
BETTING ON BREXIT
At this point, people will gamble on pretty much anything. We’ve given you the lowdown on Brexit’s far-reaching global economic effects. But for some people, with the polls calling the vote a dead heat, it was the perfect event to bet on. Here are the numbers:
- The entire betting industry took in around $200 million in bets on the referendum. This makes Brexit the UK’s biggest non-sports betting event ever, with nearly 100 times more money placed on it than those placed on the birth of Prince George in 2013. You read that right: people bet on the Royal baby’s name, hair color and future job (still waiting on the results of that one).
- Brexit’s biggest payout? Someone who bet $25,000 on the leave camp and received a solid $135,000. On the other end of the spectrum, one London-based gambler lost $100,000 after putting it all on the UK staying in the EU.
- The next big event: betting on who will be the next Prime Minister after David Cameron announced his resignation. Perhaps a parlay with November’s U.S. presidential election?
INTERVIEW QUESTION OF THE DAY
In light of recent events, why was the EU created? (Answer)
BUSINESS TERM OF THE DAY
Forex — Forex (FX) is the market in which currencies are traded. It is the largest, most liquid market in the world. Interestingly, there is no central marketplace for currency exchange, unlike securities.
FOOD FOR THOUGHT
We’re always suckers for a literal food for thought. Ever go produce shopping in NYC’s Chinatown? Chinatown markets are connected to small farms and wholesalers that work independently of mainstream suppliers. End result? It means fresher and “crazy cheap” produce to satisfy our hungry stomachs.