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Brexit Breakdown Continues

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

DOW – 260 = 17,140
SPX – 36 = 2000
NAS – 113 = 4594
10 Y – .12 = 1.46%
OIL – 1.31 = 46.33
GOLD + 8.50 = 1325.10

The aftershocks of the U.K.’s vote to leave the European Union reverberated across financial markets again yesterday. The victory for Brexit tore through world markets on Friday, pummeling the pound and high-yielding assets as more than $2.5 trillion was wiped from global equity values. Prime Minister David Cameron resigned without spelling out when the U.K. intends to leave the EU and at least 30 members of Labour Party leader Jeremy Corbyn’s team quit amid calls for his ouster.

On Wall Street, the Dow Industrial average dropped about 300 points and then bounced around, adding to the 610-point loss on Friday. Meanwhile, 10-year U.S. Treasury yields have extended their fall to 1.46.

The pound is getting slammed all over again.It extended its record decline against the dollar, falling 3.1% to as low as 1.315. Cable — as the dollar/pound currency pair is nicknamed — is one of the biggest casualties of the global-market rout triggered late last week by Britain’s vote to leave the European Union.

On Friday, the pound fell to a 30-year low versus the dollar in its biggest single-day collapse ever. UK 10-year Gilt yields have dropped below 1% for the first time to hit a new record low. The fall came after Moody’s downgraded its U.K. sovereign rating to negative from stable, citing diminished policy predictability and economic effectiveness. S&P Global Ratings cut the U.K.’s top credit grade by two levels, to AA from AAA.

British stocks were down 2.5% yesterday. While the slide in Europe’s equity benchmark reached 11% over two days, the most since 2008.European bank stocks are still tumbling, too. Shares of RBS and Barclays were briefly halted for about five minutes in London as they plunged 10%. A gauge of European lenders headed for its biggest two-day drop ever.

Many banks may move huge numbers of workers from their UK operations to elsewhere on the continent as the City of London’s role as the region’s financial hub becomes uncertain; at the very least, the UK will have to negotiate new agreements for handling financial transactions with the rest of the world.

Barclays (BCS) shares fell more than 17% for the second straight day, and the stock has now lost more than half its value in the last 12 months. RBS plummeted as much as 26% in London trading, reaching the lowest levels since January 2009. Lloyds (LYG) fell 10% at 4 p.m. in London, while challenger banks Virgin Money Holdings, OneSavings Bank and Shawbrook Group all plunged more than 25%.

US bank shares have taken pretty big hits, down nearly 10% since the Brexit vote; but keep in mind US bank stocks have had an atrocious year to date. Since the start of the year, Citi (C) is down 22%, BofA (BAC) down 23%, JPMorgan (JPM) down 10%, Goldman Sachs (GS) down 21%, and Morgan Stanley (MS) down 23%.

The next days and weeks will be key...