Growing Possibility of Brexit Rattles Markets
by Jeremy Ryan, Wells Fargo Asset Management
Global markets got the jitters after polls in Great Britain showed a majority of voters favored Brexit, a vote to leave the European Union. German government bond yields sank into negative territory for the first time as a result, while the pound and the euro weakened considerably versus the dollar. In the U.S., retail sales beat expectations, while the Federal Reserve’s June meeting began today, with any interest-rate and policy changes set to be announced on Wednesday.
The Dow fell 57 points, with 17 of its 30 components retreating; the S&P 500 Index lost 3; and the Nasdaq slipped 4. Decliners led advancers by almost two to one on the NYSE and three to two on the Nasdaq. The prices of Treasuries strengthened. Gold futures gained $1.20 to close at $1,288.10 an ounce, and the price of crude oil fell 39 cents to settle at $48.49 a barrel.
In other business news:
- U.S. retail sales rose a surprisingly strong 0.5% in May, according to the Commerce Department. Sales were strong at online retailers and at gas stations, helped by a rise in gasoline prices. Sales at department stores and building and garden stores declined. The results follow an even stronger 1.3% gain in April, showing consumers were still spending despite looming global economic uncertainty.
- The yield on the German 10-year bund fell into negative territory for the first time today, indicating investors are searching for safe havens ahead of potentially tumultuous events in the coming weeks, such as the upcoming vote in Great Britain on whether to leave the European Union, or Brexit. The yield at one point hit -0.03%, as investors were essentially willing to pay Germany for the presumed safety of holding German government debt.
- European shares had another bad session in anticipation of Brexit. London’s FTSE 100 sank 2.01%, Germany DAX lost 1.43%, Spain’s IBEX 35 tumbled 2.13%, and France’s CAC 40 was off by 2.29%.
- In a bright spot in Europe, eurozone industrial output rose a healthy 1.1% in April from March (2.0% higher year over year), according to Eurostat. Much of the gain came from higher production of consumer goods, which have benefited from an improving job market and lower energy prices that have allowed consumers more room for spending.
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On Monday, Microsoft announced it was acquiring professional networking site LinkedIn for $26 billion. For some reason, LinkedIn, which sends me approximately 25 emails a day, neglected to email informing me of its new job change and I had to learn about it in the press.
As tech and business news website Recode reported,
LinkedIn had been struggling recently. Its ad sales were flat, its share price was nearly cut in half from recent highs, and it wasn’t growing as fast as it used to. New user growth was slowing, and existing users weren’t spending as much time on the site, perhaps because they were too busy deleting all the emails LinkedIn had sent them begging them to visit the site. LinkedIn was beginning to look a lot like Twitter: a fun way to waste some time but hard to justify the lofty valuation (except in LinkedIn’s case, insert “crippling sense of professional obligation” instead of “fun”).
So what could we expect from the combined professional juggernauts of LinkedIn and Microsoft?
- People love to share things, like pictures of themselves and their family and friends, as shown by the explosive growth of Facebook. But what they really want to share are their favorite PowerPoints. Now they’ll have the chance, with—I assume—integrated sharing mechanisms with Microsoft’s entire Office suite of products. “Slide 93 really cracks me up,” someone might share about their favorite PowerPoint, or they could upload an Excel spreadsheet and say, “Get a load of the calculation error in sheet 3, column M, row 735. I mean, seriously!” Who needs family when you have business productivity software?
- LinkedIn users have grown accustomed to the constant emails from LinkedIn informing them of every little change someone has made in their network. Now they can look forward to getting emails whenever someone heroically upgrades from Windows XP. There could also be LinkedIn support groups for users of Windows Vista.
- Integration with Microsoft’s Outlook calendar could give brand new meaning to “I would like to add you to my professional network on LinkedIn” emails. Now, wannabe networkers could say, “I would like to add you to my professional network on LinkedIn, and I see you have a half hour free between 12 and 12:30 p.m. this coming Friday when we could chat about it. I see you’re booked solid in the morning and the afternoon, so I’m assuming this is time you’ve set aside to talk to strangers from LinkedIn.”
