Business & Economy

Brexit: Global stocks tumble after Britain votes to leave the EU

Traders work on the floor of the New York Stock Exchange (NYSE) following news that the United Kingdom has voted to leave the European Union on June 24, 2016 in New York City. The Dow Jones industrial average closed down over 600 points on the news with markets around the globe plunging.
Traders work on the floor of the New York Stock Exchange (NYSE) following news that the United Kingdom has voted to leave the European Union on June 24, 2016 in New York City. The Dow Jones industrial average closed down over 600 points on the news with markets around the globe plunging.
Spencer Platt/Getty Images

Listen to story

31:02
Download this story 14MB

The United Kingdom's close decision to leave the European Union has sent ripples throughout the globe, raising a barrage of social, economic and cultural questions. David Cameron, the British prime minister, announced that he will be stepping down in October and world markets have already experienced sharp declines. 

Check back here for updates to this story. You can also listen to discussion about the "Brexit" from KPCC programs Take Two, The Frame and AirTalk

Updates

Update 4:04 p.m.: Global stocks tumble after Britain votes to leave the EU 

Stocks plunged in the U.S. and worldwide Friday after Britain voted to leave the European Union. The result stunned investors, who reacted by rushing to the safety of gold and U.S. government bonds as they wondered what will come next for Britain, Europe and the global economy.

U.S. stocks gave up all their gains from earlier in the year. The Dow Jones industrial average tumbled 610.32 points, or 3.4 percent, to 17,400.75. The Standard & Poor's 500 dropped 75.91 points, or 3.6 percent, to 2,037.41. Both indexes took their biggest losses since August. The Nasdaq composite suffered its biggest loss since mid-2011, down 202.06 points, or 4.1 percent, to 4,707.98. Indexes in Europe and Asia took even larger losses.

The British vote brought a massive dose of uncertainty to financial markets, something investors loathe. Traders responded by dumping riskier assets that appeared to have the most to lose from disruptions in financial flows and trade: banks, technology companies and makers of basic materials. More shares were traded than on any day since August 2011, when Standard & Poor's downgraded the credit rating of the U.S. government during a crisis over the budget and the country's debt ceiling.

"This vote is a step away from free trade," said Bob Doll, chief equity strategist Nuveen Asset Management. "When you add to it the specter of the last couple of years of terrorism it causes the average individual ... to be more nationalistic, more populist, more protectionist."

Bond prices surged and yields fell. The yield on the 10-year U.S. Treasury note dropped to 1.56 percent from 1.75 percent on Thursday, a large move.

Banks took the largest losses by far. Citigroup plummeted $4.16, or 9.4 percent, to $40.30 and JPMorgan Chase fell $4.45, or 6.9 percent, to $59.60. They have the most to lose in Britain's departure from the EU because they do a lot of cross-border business in Europe based from their offices in London. They also become less profitable when bond yields fall, since that lowers interest rates on mortgages and many other kinds of loans.

Microsoft fell $2.08, or 4 percent, to $49.83 and IBM gave up $8.76, or 5.6 percent, to $146.59. DuPont gave up $3.21, or 4.6 percent, to $66 and LyondelBassel Industries lost $4.14, or 5.2 percent, to $74.91.

The pound fell dramatically, to $1.3638. At one point the British currency hit a 31-year low.

Oil prices sank. Benchmark U.S. crude declined $2.47, or 4.9 percent, to close at $47.64 a barrel in New York. Brent crude, the international benchmark, fell $2.50, or 4.9 percent, to $48.41 a barrel in London.

In addition to bonds, other safety assets also soared. Gold jumped $59.30, or 4.7 percent, to $1,322.40. That's its highest price since July 2014. Silver rose 44 cents, or 2.5 percent, to $17.79 an ounce, its highest in more than a year. Gold producer Newmont Mining rose the most in the S&P 500 index. It climbed $1.80, or 5.1 percent, to $37.19 and set a three-year high.

High-dividend utility companies made tiny gains. Consolidated Edison rose $1.55, or 2 percent, to $78.41 and Duke Energy added 38 cents to $82.43.

The vote only begins the process of Britain's departure from the EU, and it also begins years of negotiations over Britain's trade, business and political links. Observers wonder if other nations will follow in Britain's footsteps by leaving the EU.

"This is a negative in economic terms for the UK," said David Kelly, chief global strategist at JPMorgan Asset Management. "The EU will be very tough negotiators with them."

Investors had sent stocks higher this week as they gradually grew more confident, based on polls and the changing odds in the betting market, that Britain would stay in the E.U. They sent the pound to its highest price of the year and sold bonds, pushing yields higher. Those gains were rapidly undone Friday.

Updated 12:04 p.m.: Obama says UK committed to 'orderly transition' from EU

Calling British Prime Minister David Cameron a "friend and partner on the global stage," President Obama expressed his confidence in the United Kingdom's "orderly transition" from the European Union during his opening remarks at global entrepreneurial summit at Stanford University on Friday. 

“I do think that yesterday’s vote speaks to the ongoing changes and challenges that are raised by globalization," he said. "While the U.K.’s relationship with the EU will change, one thing that will not change is the special relationship that exists between our two nations. That will endure. The E.U. will remain one of our indispensable partners."

Video: Obama addresses Brexit at Stanford event

The reassurance could not paper over what was clearly a blow to the president, who in one night saw his calls for unity rejected and his legacy in Europe reshaped. Obama had strongly urged that the U.K. remain in the EU, and the decision significantly undermined his efforts to counter the isolationist viewpoints taking hold in many parts of the world, according to the AP.

The vote also ensured that, despite his high-profile aim of strengthening international alliances, he will leave office with the European Union diminished and under threat of further unraveling.

The impact of the vote was felt far beyond London and Brussels on Friday. Stocks plunged in the U.S. and worldwide as stunned investors wondered what will come next for Britain, Europe, the world's largest economic bloc, and the global economy. U.S. Treasury Sec. Jacob Lew promised to work closely with British and European officials to ensure "economic stability, security, and prosperity in Europe and beyond."

Lew said he had been consulting for weeks with finance officials and investment firms.

"The U.K. and other policymakers have the tools necessary to support financial stability," he said.

In the run up to the vote, the White House had declined to discuss its contingency planning for Britain's departure, suggesting it was not expecting to need it.

But in making his case against the split, Obama had described some stark outcomes. On national security and economic matters, Britain is key liaison to Europe for the U.S. and powerbroker. That status would be diminished upon a withdrawal from the union, Obama said during an April visit to London where he made an aggressive case against the "leave" campaign.Obama also painted a grim picture for British companies that do business with the U.S. The United States will continue to prioritize its still-unfinished free trade deal with the EU and would be in no hurry to start negotiating a free trade deal with Britain.

"The U.K. is going to be in the back of the queue," he said.

In a statement issued as he traveled in California, Obama took a softer tone.

"The United Kingdom's membership in NATO remains a vital cornerstone of U.S. foreign, security, and economic policy," Obama said in a statement. "So, too, is our relationship with the European Union, which has done so much to promote stability, stimulate economic growth, and foster the spread of democratic values and ideals across the continent and beyond."

U.S. Vice President Joe Biden, traveling in Dublin, added that the U.S. will keep working with its partners to create "a new road ahead."

House Speaker Paul Ryan said the vote was "all the more reason for America to lead."

"America needs to lead; the world wants America to lead," Ryan told reporters in the Capitol.

– KPCC staff and wires

Updated 10:45 a.m.: Brexit's effect on the US market, travel and you

The immediate aftermath of the U.K.'s decision to leave the European Union shows a decline in U.S. and European markets, with many wondering how the country's decision will affect their pocketbooks.

Though it's ultimately not clear what the markets will do in the coming weeks, Jim Puzzanghera, business and economic writer for L.A. Times, told Take Two that people should hold tight. 

“Today, it’s not so good but it’s unclear if that’s going to continue. The markets, by most accounts, should stabilize,” Puzzanghera said. 

For the U.S., Puzzanghera said it's important to remember that though the U.K. is a big ally, it is not one of the nation's prominent trading partners, adding that while it's important to think about the big-picture consequences, it's likely you're most concerned with how the vote will impact your bank account. 

Puzzanghera said if you live in the U.S. and have money in a 401K, you're in it for the long term and the best thing to do is not look at the numbers for a few days or weeks while the immediate effects of Brexit shake out. 

If you're wondering how travel to the U.K. will be affected, look forward to more bang for your buck — at least for now. 

“The pound compared to the dollar is down about 7 percent, so if you’re thinking about going to London or elsewhere in the U.K., which is one of the most expensive places to travel, this might be a good time to do it,” Puzzanghera said. 

Apart from "short-term gyrations" in the market, Paul J. Wright, an attorney and chair of the British American Business Council, does not believe the country's departure will have a huge economic impact. 

“The only caveat to that is if a number of other countries wanted to leave, the markets will have to adjust to that as well,” Wright, who was in favor of Brexit, told Take Two. 

Wright said Brexit will free Britain to be a more independent country when making trade deals and decisions on immigration. 

– KPCC staff

Updated 6:46 a.m.: US stocks plunge after UK votes to leave European Union

U.S. stocks are plunging in early trading after Britons voted to leave the European Union.

The Dow Jones industrial average dropped 500 points, or 2.8 percent, to 17,515 in the first few minutes of trading Friday.

Traders work on the floor of the New York Stock Exchange (NYSE) following news that the United Kingdom has voted to leave the European Union on June 24, 2016 in New York City. The Dow Jones industrial average quickly fell nealy 500 points on the news with markets around the globe plunging.
Traders work on the floor of the New York Stock Exchange (NYSE) following news that the United Kingdom has voted to leave the European Union on June 24, 2016 in New York City. The Dow Jones industrial average quickly fell nealy 500 points on the news with markets around the globe plunging.
Spencer Platt/Getty Images

The Standard & Poor's 500 index fell 57 points, or 2.7 percent, to 2,056. The Nasdaq composite sank 158 points, or 3.2 percent, to 4,751.

It was the biggest drop for U.S. stocks since September.

European markets fell even more. France's benchmark index lost 8 percent and Britain's fell 4 percent.

The British pound plummeted to a 31-year low.

Bond prices rose sharply. The yield on the 10-year Treasury note dropped to 1.56 percent from 1.75 percent a day earlier, a huge move.

— Associated Press

5:59 a.m.: UK votes to leave EU. What comes next?

United Kingdom voters sent shockwaves across Europe and beyond with their vote to exit the European Union. The "Brexit" vote stunned the country's political elite, the financial markets and British bookmakers, all of whom had expected a very close vote in favor of remaining in the European Union.

Boris Johnson, a former mayor of London and a strong proponent for Britain's departure from the EU, holds a press conference at Vote Leave headquarters in London on Friday. Johnson is considered a leading contender to replace Prime Minister David Cameron, who announced Friday that he will be stepping down by October.
Boris Johnson, a former mayor of London and a strong proponent for Britain's departure from the EU, holds a press conference at Vote Leave headquarters in London on Friday. Johnson is considered a leading contender to replace Prime Minister David Cameron, who announced Friday that he will be stepping down by October.
Stefan Rousseau/AP

Instead, Britain now finds itself in uncharted waters, and looking for a new captain. Prime Minister David Cameron, just days after vowing that "Britain never quits," says he'll be stepping down by October.

"I fought this campaign in the only way I know how, which is to say directly and passionately what I think and feel, head, heart and soul," he said outside the prime minister's office at 10 Downing St.

"But the British people have made a very clear decision to take a different path, and as such I think the country requires fresh leadership to take it in this direction."

Cameron will stay on as a caretaker, but said a new prime minister should be in place by the time his Conservative Party holds a party conference in October.

How are financial markets reacting?

The British pound plunged to 31-year lows, stock markets around the world churned, and the governor of the Bank of England, Mark Carney, stepped forward to reassure markets and bankers that nothing will be changing immediately. He said the Bank of England has 250 billion pounds in assistance at the ready, and will take all necessary measures to maintain market stability.

How will the U.K. and the EU divorce?

The vote itself does not immediately remove Britain from the EU, which is based in Brussels. The British government must notify the EU of its intention to withdraw from the union, which will trigger Article 50 of the Lisbon Treaty, one of the EU's fundamental documents.

Article 50 envisions a two-year window to negotiate the terms of Britain's withdrawal, and to set in place whatever new agreements can be reached. There are provisions for extending the two-year period, if all members agree. Much remains unknown, as this has never happened before in the EU, which now has 28 members, including the U.K.

Cameron's announcement that he'll be gone within months suggests that this negotiating process won't begin in earnest until the fall.

Who are the winners and losers?

The biggest loser is Cameron, who just last year was being hailed for his electoral skills after bringing the Conservative Party a clear governing majority. Cameron decided to hold the EU referendum because he thought it would be a way of getting the Euro-skeptics in his own party to "stop knocking on about Europe," as he once said.

Philip Cowley, professor of politics at Queen Mary College London University, said before the vote that "it would be remarkable if someone who had taken the party back into power, then managed to win a majority against all odds, found himself kicked out within a year because he gambled on something he never wanted to do in the first place."

That prediction is now coming to pass.

Other losers include Labour Party Leader Jeremy Corbyn, who was roundly criticized for his "half-hearted" support of remaining in the EU. Labour mobilized its resources fairly late in the game, and voters in many Labour strongholds cast ballots in large numbers in favor of the Brexit. Corbyn finds himself in the uncomfortable position of a pro-workers rights politician who's seen as out of touch with his rank and file.

On the winning side of the ledger, former London Mayor Boris Johnson is seen as a strong contender to replace Cameron in the Conservative Party leadership contest that effectively begins immediately. Other contenders include Justice Minister Michael Gove, a leading Brexit campaigner, and the Home Secretary Theresa May.

And it's unlikely that anyone is celebrating the vote any more thoroughly than Nigel Farage, head of the right-wing U.K. Independence Party (UKIP). Never part of the official Leave campaign and dismissed by his critics as a fringe politician, Farage focused relentlessly on immigration and British sovereignty, two hot-button issues with Leave voters.

Now seen by his supporters as a champion of the working class, Farage called the vote a "victory for real people." He also said he looked forward to other EU countries holding their own referendums.

"The EU's failing, the EU's dying, I hope we've knocked the first brick out of the wall," he said.

EU leaders in Brussels will not be amused by Farage's Berlin Wall analogy, but they will have other worries on their minds: Just like U.K. residents, they awoke this morning to a very different future.

— Peter Kenyon/NPR

Copyright 2016 NPR. To see more, visit http://www.npr.org/.