Global financial markets tumble on Brexit

Financial Markets
Global financial markets buckled on Friday following the U.K.’s vote to leave the European Union. Stock
markets tumbled with European shares heading for the biggest drop since the 2008 global financial
crisis. U.S. equities slumped as well with the S&P 500 index falling 2.4 percent in the morning session.
The British pound fell to the lowest in more than 30 years against the dollar, sliding as much as 11
percent to $1.3229, the weakest since 1985. The yield on 10-year German government debt dropped 17
basis points (bps) to minus 0.07 percent, while the rate on comparable Italian bonds climbed 18 bps to
1.56 percent.

In the fallout of the U.K. referendum, the market is discounting the odds of a rate hike and implying higher
probability of a rate cut. The pricing on federal funds futures contracts currently show a 10 percent
probability that the Federal Reserve will lower interest rates in July, with a zero percent chance of a hike.
In fact, market implied odds signal that all the way through February 2017, looser monetary policy is more
likely than a continuation of the central bank’s tightening cycle.


Advanced Markets
U.S. consumer sentiment eased to 93.5 in June, less than expected and down from a preliminary reading
of 94.3, and compared to a reading of 94.7 in May, as measured by the University of Michigan consumer
sentiment index. Consumers were less optimistic about current conditions and future economic prospects
as they expect slower employment gains in the year ahead and higher jobless rate as the economy cools.

New orders for U.S. manufactured durable goods shrank 2.2 percent (m/m) in May, following a
downwardly revised 3.3 percent expansion in April. The reading came in below the market expectations
of a 0.5 percent decline, dragged down mainly by transport equipment. Core capital goods orders, a
proxy for business spending, fell 0.7 percent in May after dropping 0.4 percent in April, and below the
economists’ forecast of a 0.4 percent gain. Further, shipments of manufactured durable goods dropped
0.2 percent in May following a 0.4 percent increase in April, while inventories of manufactured durable
goods fell 0.3 percent in May, from a 0.4 percent drop in April.

Germany’s Ifo Business Climate Index rose to 108.7 in June, from an upwardly revised reading of 107.8
in May, and above the market expectations of 107.5. It was the highest reading since November 2015,
following a jump in the current conditions index and future expectations as companies shrugged off the
risk of the Brexit referendum.


Emerging and Developing Economies
East Asia and Pacific

Malaysia’s unemployment rate was 3.6 percent in April, up from 3.5 percent in March. It was the highest
jobless rate since June 2010 as the number of unemployed rose, while the number of employed fell.
Meanwhile, the labor force also declined.

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Consumer prices in Vietnam rose 2.4 percent (y/y) in June, after a 2.3 percent rise in May. It was the
highest inflation figure since November 2014 as cost increased for most categories. Core inflation stood
at 0.1 percent, slowing from 1.9 percent in May.


Europe and Central Asia

Economic sentiment among Turkish manufacturers fell to 106.8 in June from 109.8 in May, as the general
business situation, the current amount of orders and the fixed investment expenditure declined. Also,
manufacturers' expectations for the next three months regarding the volume of output, total employment
and new orders fell sharply.


South Asia

The central bank of Sri Lanka held its standing deposit facility rate at 6.5 percent. The standing lending
facility rate was also kept unchanged at 8 percent. Policymakers noted that inflation had risen due to the
impact of the increase in VAT, as well as the supply side disruptions due to adverse weather conditions.


Sub-Saharan Africa

The World Health Organization (WHO) said on Thursday that it will launch emergency yellow fever
vaccination campaigns along the border between Angola and Democratic Republic of Congo and in the
Congolese capital Kinshasa next month. The worst yellow fever outbreak in decades has killed some 325
people in Angola, while Congo declared an epidemic in Kinshasa and two other provinces with more than
1,000 suspected cases.


June 24, 2016



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