NEWS
06/27/2016 13:27 EDT | Updated 06/28/2017 01:12 EDT

Brexit hangover continues for North American markets, Canadian dollar

TORONTO — Britain's vote to leave the European Union continued to exact a toll Monday on North American stock markets, with Canada's main index plunging to its lowest level in nearly two months.

Equity markets in Toronto and New York piled up losses for a second straight trading day, with the TSX dragged down by declines across most sectors including metals, energy and bank stocks.

The S&P/TSX composite index in Toronto ended 202.09 points lower at 13,689.79, dropping more than three per cent over the past two days.

Global stocks have been in free fall since Britons voted to leave the EU in a referendum on Thursday. Since then, British officials have tried to quell fears that the country's departure from the economic union won't send its economy into a tailspin, even as Standard & Poor's stripped the U.K. of its top credit rating on Monday.

The aftershocks were felt in New York, as the Dow Jones industrials tumbled 260.51 points at 17,140.24 after a whopping 610-point drop Friday, while the broadly based S&P 500 dropped 36.87 points at 2,000.54. The tech-heavy Nasdaq was down 113.54 points to 4,594.44. Wall Street hasn't seen such lows since March.

The after-effects of the British exit, commonly referred to as Brexit, have been even more pronounced because investors had not anticipated the "Leave" side to win.

"What we're seeing is a bit of a knee-jerk reaction and also some unwinding of the gains in anticipation of a different outcome," said Craig Fehr, a Canadian market strategist with Edward Jones in St. Louis.

Fehr said the continued decline is also a result of sellers who are still looking to flee their stock portfolios in favour of safer havens like gold.

"It's reasonable to expect the market could find a bit of a base in the short term, but volatility is likely going to persist well into the summer," he said.

The uncertainty that markets traditionally despise could weigh on stocks as the impact of Brexit unfolds in the next few months or potentially, years.

"There is no clear decisive playbook for how this is going to transpire," said Fehr.

"(But) I don't think Brexit represents the catalyst that sends the global economy into recession and the markets are in some degree, treating it as such."

Even so, it may be enough to make the U.S. Federal Reserve rethink hiking interest rates at its next policy meeting in July amid such turbulent global economic times.

The Brexit decision also weighed on currency markets as the Canadian dollar lost 0.44 of a U.S. cent to 76.49 cents US after plunging 1.37 cents US on Friday against a strengthening greenback.

In commodities, the August contract for benchmark North American crude oil was down $1.31 at US$46.33 a barrel. August natural gas rose five cents to US$2.74 per mmBtu and July copper added a penny to US$2.12 a pound.

The August contract for gold rose $2.30 to US$1,324.70 a troy ounce after soaring $59.30 on Friday.

Overseas, Britain's FTSE 100 fell 2.5 per cent, while Germany's DAX and France's CAC 40 each gave up three per cent.

— With files from The Associated Press

 

Follow @LindaNguyenTO on Twitter.

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