Futures File

June 24, 2016

Brexit Leaves Global Markets Bloodied

Breakups are seldom pretty, but Britain’s separation from the European Union got off to a particularly nasty start. UK citizens voted Thursday by a narrow margin to leave the EU, which sent global financial markets into a tailspin. As tallied votes started pointing toward a “Brexit” on Friday morning in the UK (throughout the night US time), global investors embarked on a wild bout of trading.

They clobbered the British pound, which swung from $1.50 to under $1.33, a low not seen in over 30 years, as traders expected the British economy to suffer after losing easy access to the EU’s markets. Investors also fled from the Eurocurrency and global stock markets on fears that a widespread economic slowdown could follow.

As they dumped stocks and currencies, they sought the safety of the US Dollar, bonds, and, especially, gold. The yellow metal rallied a whopping $100 per ounce at one point, with August gold futures reaching a two-year high over $1360.

Longer term, the political impact of the vote could be even more extreme than the financial calamity seen Thursday night and Friday morning. Shortly after the Brexit was announced, political leaders in Scotland and Northern Ireland, both currently part of the UK, pushed for votes in those countries for independence from England and Wales. To some, this signals that the Brexit could be just the first in a series of independence movements throughout Europe.

 

Slaughter Spreads to Cattle

As most of the financial markets were melting down this week, cattle futures collapsed to a four-year low as well, trading under $1.14 per pound.

Beef demand has been waning recently, and some analysts fear that the falling stock market could undercut demand for steaks as investors become more frugal. Hot Midwest weather is also pushing ranchers to aggressively sell animals to avoid heat stress, adding to the slaughter-ready inventory.

After the market closed Friday afternoon, the USDA released a slew of data detailing the size of the national cattle herd and amount of beef in freezer inventories, which means that there could be a stampede in the cattle markets Monday morning.

For over 18 years, Walt taught his method of trading at Purdue University. His comments on the markets have been featured in USA Today and other national outlets.

Walt's weekly commentary has been published for nearly 25 years. Futures File, written on Fridays for Saturday publication, provides a brief summary of commodity futures market highlights for the week.