By DTN News Staff
OMAHA (DTN) -- In a historic move that will have major long-term implications on trade and markets, voters in Great Britain surprised the world by voting Thursday to leave the European Union.
David Cameron, Great Britain's prime minister, announced Friday morning he was resigning after the vote of 17.4 million (52%) to leave versus 16.1 million (48%) to remain in the EU trading bloc.
DTN analysts reported on market reaction throughout the night. As expected, European Equity markets took a hit shortly after Friday's open. London's FTSE 100 was down about 500 points, Germany's DAX was off more than 1,000 points, and France's CAC 40 was down 350 points. Asian markets continue to trade lower with Japan's Nikkei off roughly 1,290 points.
With the exception of gold, the commodity sector in general was hit by heavy investment fund selling due to the explosive rally in the USDX. Crude oil initially dropped $3.40, or about 7% of its price, in a short period of time while grains continued to be pummeled. July corn fell as much as 10 1/2 cents while July soybeans moved 20 1/2 cents lower. Even Chicago wheat, where noncommercial traders already held a net-short futures position, fell 12 1/2 cents.
As DTN Senior Analyst Darin Newsom wrote, after an initial rally the British sterling fell to a 35-year low while the U.S. dollar index (USDX) rallied 3.174 (3.4%) from Thursday's close. Reflecting a race to safe haven markets, gold gained $99.50. That's right, just four bits short of a $100 rally.
Global equity markets were in full panic selling mode with Japan's Nikkei losing about 1,300 points (8%) ahead of what was expected to be a crushing open in European markets. As expected London's FTSE 100 fell about 500 points, Germany's DAX dropped more than 1,000 points, and Frances CAC-40 dipped 400 points.
"What was interesting though, within the first hour, was the FTSE 100 started to rebound. Was it a case of nothing more than a dead-cat bounce, or as chatter started to pick up on, was the Brexit vote more troublesome for the rest of Europe more than the U.K.?," Newsom said.
The U.S. dollar index moved upward quickly after the vote and remained firm early in the morning, up 1.840, while gold was still holding a gain of $57.
In U.S. equity markets, the Dow Jones Industrial Average futures were down 500 points early, off session lows but still pointing at a sharply lower open later Monday morning.
European equity markets remain under pressure across the board with London's FTSE still doing better than indexes seen over the rest of Europe.
DTN's market coverage will continue in our normal Before the Bell, Quick Takes, and Closing analysis.
The British departure leaves world leaders wondering how to treat the Great Britain. President Barack Obama and other U.S. officials before the vote said they had no plans to negotiate separate trade deals with Great Britain compared to Europe. At the same time, the U.S. government has always maintained a special, separate relationship with Great Britain so any pre-vote posturing will have to be immediately re-evaluated. The White House did not release any immediate statements following the vote but it is likely the president will have more to say on Friday.
German Chancellor Angela Merkel called for Europeans to remain "calm and composed" in the wake of the vote and insisted that the EU would continue to have close ties to Britain. Still, Merkel also called the vote "a turning point" in the EU.
The vote is seen as a nationalist rebuke of European policies on immigration and refugee resettlement from war-torn areas such as Syria. By separating itself from EU policies, Britain will likely be able to tighten its borders. Voting patterns showed much of England voted to leave the EU while Scotland voted to stay with the Europeans. Voting in Ireland appeared more mixed.
However, the vote will have long-term implications for agriculture and markets as well. The UK was a net importer of food and bought $2.7 billion in U.S. agriculture, fish and forestry products in 2014, according to USDA. That's compared to $13 billion in U.S. agricultural exports to major EU members as a whole.
DTN Political Correspondent Jerry Hagstrom noted British farmers were believed to have voted heavily in favor of leaving the EU. Still, the departure also means British farmers will lose massive amounts of farm subsidies. The UK has often complained about the European Common Agricultural Policy, but it has also opposed measures restricting subsidies to large farms because the UK has had some of the largest farms within the EU.
The UK's departure also means that a major voice in favor of genetic modification will be missing from EU debates in the future. The vote for Great Britain to exit the EU -- known as "Brexit" -- also means the UK will no longer be part of the TransAtlantic Trade and Investment Partnership negotiations.
The EU agricultural lobby Copa-Cogeca issued a statement noting the group is still analyzing the impact on agriculture of the vote, based on both EU institutions and UK government decisions, but noting a key point will be to avoid any further disruption to the European agriculture market.
"It's crucial to maintain market stability," the group stated.
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