Brexit Update: Markets Fear EU Banking Crises

July 13th, 2016

Markets Fear EU Banking Crises

Global banks are feeling the effects of Brexit. Political and economic uncertainty in the United Kingdom (UK) is spilling over into the European Union (EU) and the United States (US).  The impacts on UK banks were almost immediate, with shares falling dramatically and Bank of England (BOE) Governor Mark Carney expected to announce interest rates cuts this summer.

Now, however, the effects of the UK’s referendum are spreading to its neighbors. With several EU member states already on shaking ground, sustained low interest rates threaten to neutralize the monetary tools of the European Central Bank (ECB). The central bank has been working for years on stimulus measures and bond buying programs to boost inflation with limited success. Brexit comes at a time when Italy faces a systemic bank crisis and Portugal anticipates a similar situation.  Reflecting these dynamics, the Euro Stoxx Banks Index has fallen nearly 20 percent since the vote on June 23, 2016. ECB member and Governor of Estonia’s central bank, Ardo Hansson, weighed in during a recent interview saying Brexit “certainty doesn’t help.” He added, “It’s one more factor creating uncertainty.”

US banks have not been immune to the contagion either. Bloomberg recently reported that the six largest US banks saw an 18 percent year-over-year drop in combined net income during the second quarter of this year.

#Brexit:  What’s Trending?

Brexit Update

Exchange Rates

£1 GBP = $1.32 USD

€1 EUR = $1.11 USD

£1 GBP = €1.19 EUR

(as of 10:00 AM EST, 7/13/2016)

Top Stories:

May Assumes Role as Prime MinisterToday, new Conservative Party leader Theresa May officially succeeded David Cameron as Prime Minister.  May will have to manage a full agenda in her new position including Brexit negotiations and an ailing economy.

German Economy Shaken by BrexitGermany’s monthly economic report for July showed a slowing of momentum in the German growth. The Economics Ministry said, “European risks stemming from the foreign-trade environment have increased since the British people’s Brexit vote.”

UK Corporate Confidence CollapsesCredit Suisse released the findings of a survey of 80 European businesses. The results show a deterioration of confidence in UK markets, with more than 60 percent of respondents indicating plans to delay or cut spending through the end of the year.

Asian Markets RallyJapanese markets have enjoyed a boost from Brexit uncertainty, with the Nikkei and Topix charting gains this week.