World Financial Markets Feel Impact

World Financial Markets Feel Impact

June 24, 2016

The world awoke to a new global economic landscape this morning after citizens in the United Kingdom voted to exit the European Union.  The historic referendum narrowly passed with 51.9% of the votes calling to exit the EU. The move sent global markets plunging.

Asian markets felt the impact first.  The Nikkei Stock Average closed nearly 8% lower as the yen gained over 2% against the dollar, hitting shares of the country’s exporters. According to the Wall Street Journal, "it was the worst day for Japanese stocks since 2011."  

European markets were next. The British pound fell more than 8% and is worth less relative to the dollar than it has been in 30 years.  

Here in the U.S., the NASDAQ and Standard & Poor's 500 stock index both fell more than 2% and the Dow Jones Industrial Average dropped more than 500 points just minutes after trading began.

What does this mean for American producers?

While the dollar is up, that means American commodities are more expensive, making them less competitive in a global market.  This will affect everything from cattle to soybeans.  

Treasury rates have also dipped 20 points as of this morning, causing financial analysts to predict a drop in mortgage rates in the U.S.  

Political Impact of the Brexit Vote

The fallout from the Brexit referendum isn't just upsetting the markets.  Political changes are now in motion including the resignation of Britain's Prime Minister, David Cameron.  An advocate for staying in the EU, Cameron will officially step down in October.  Scotland strongly opposed the exit and Scotland First Minister, Nicola Sturgeon, says a second referendum seeking independence from the United Kingdom is now "highly likely."  The Deputy First Minister of Northern Ireland, Martin McGuinness, believes there are now grounds to reunify Ireland and Northern Ireland.

What is the European Union?

The European Union is a political and economic partnership between 28 (now 27) European countries.  It created a "single market" system in 1992 which allows for the free movement of goods and people as if the individual countries were one state.  The EU has its own currency (the Euro used by 19 of the member countries), its own parliament and laws. 

One goal of the EU is to increase trade and jobs while lowering prices, but it requires each country to adopt similar laws in order for things to work evenly across borders.  Many in the U.K. who supported leaving, cited overreach of the EU into British affairs and rules on British businesses.

But an even more hotly contested issue of Brexit was that of immigration.  The free movement across borders means citizens from poorer countries can immigrate to richer countries.  Many Brexit supporters felt Britain should have more control over its national borders.

RFD-TV's Market Day Report will continue to follow this story and how it impacts rural America.

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