REPORT
By Ovunc Kutlu & Gulbin Yildirim
New York - Washington letter, week beginning June 27

 - What happened last week?

 The most important development last week was the U.K.’s decision to leave the EU (Brexit) on Friday. After the much-awaited referendum, indexes in the U.S. stock market began the day with losses of between 2.5 to 3.7 percent. However, Wall Street closed even lower, having its worst daily performance since August last year. At the final bell, the Dow Jones was down 611 points, or 3.4 percent. The S&P 500 lost 76 points, or 3.6 percent, and the Nasdaq was down 202 points, or 4.1 percent.

Brexit had a negative effect on oil markets as well. Crude oil prices lost 5 percent with a stronger dollar on Friday. At the final bell, the U.S. benchmark traded 5 percent lower at $47.62 a barrel, and international benchmark Brent crude was $48.42 -- a 4.9 percent loss.

Stock values of U.S.-based multinational investment banks that operate in the U.K. also posted massive losses with the Brexit. Citigroup saw its shares plunge 9.4 percent, while Morgan Stanley lost about 10 percent. Goldman Sachs, Bank of America, and JP Morgan Chase each had their stock values decline around 7 percent by the closing bell

Meanwhile, the Federal Reserve stated Friday that it is ready to help other central banks after the U.K. voted to leave the EU, and said "The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy.”

In addition, major rating agencies on Friday warned of downgrades to the U.K.’s credit following the vote by Britain to leave the EU. Moody's left the EU's rating unchanged but lowered the U.K.’s outlook to "negative" after the Brexit result. The rating agency said Brexit "will herald a prolonged period of uncertainty for the U.K." and "diminished confidence and lower spending and investment to result in weaker growth."

Standard & Poor's also said Friday that it would review the rating of the U.K., and added "We could lower the rating by more than one notch if we believed that the U.K.'s institutional strength and ability to formulate policy conducive to sustainable growth were negatively affected.”

Fitch Ratings said the referendum result could mean weaker investment and more uncertainty for the U.K., stating Britain's financial sector could be negatively affected from higher import costs and pressure on exports.

- What to expect from this week?

The markets and investors will continue to closely monitor the repercussions of the Brexit this week. In addition, comments from U.S. officials state institutions and analysts will be followed to see whether they can calm the markets. According to analysts, it is important how Wall Street will shake off the negative effects of the Brexit and how long this will take.

The markets will also watch some U.S. macroeconomic data that will be revealed this week. On Tuesday, the gross domestic product (GDP) of the first quarter will be announced. While there was a 0.8 percent increase in GDP in the last quarter, the market expectation is to have a one percent rise for the first quarter this year.

On Wednesday, consumer spending for May and weekly crude oil and gasoline inventories in the U.S. will be watched closely. On Thursday, the weekly initial jobless claims data is expected to give hints about the well-being of the U.S. economy. 

27 Jun,2016

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