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Brexit At Tiffany’s: EU Banks Fall Back To February Levels (Not End Of The World)

This is a syndicated repost published with the permission of Confounded Interest. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

I made the mistake of reading the Washington Post this morning. To the WaPo, Brexit is like the film “Armageddon” with Bruce Willis and Ben Affleck.

Now, it is only the Saturday (in the USA) after Brexit. The media focused on global doom and gloom in yesterday’s market. And global markets did fall.

But let’s look at European banks. Here is the price reaction of the Euro Stoxx bank price index after the Brexit vote was announced. Yes, the bank price index fell from 102.87 to 84.28 Euros. But it didn’t fell to zero as some would have you believe.

eubankbrexit

More importantly, European bank stock prices simply fell back to February 2016 levels.

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But, you might say, that is when the fear of Great Britain withdrawing from the European Union began.

Let’s face an unpleasant fact. European banks never really recovered from the financial crisis in 2007-2008. In fact, I had to highlight the BREXIT with a bright blue box so you can spot it since 2007.

ebhysteria

The comparisons of Brexit to “the worst thing I have ever seen” (Former Fed Chair Alan Greenspan) is just plain hysteria. And a tip of the hat to BNP Paribas who actually have a higher stock price today than during the financial crisis. Same for Barclays.

True, this week may see further stock price declines. But so far Brexit barely showed up on a long-term price chart.

The one thing Brexit did accomplish is what The Fed and ECB have tried to accomplish all along: push sovereign interest rates down. But will Yellen and Draghi push for a rate increase in the face of market-driven interest rate declines?

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Not likely. The implied probability of a Fed Funds hike is zero for the next two FOMC meetings and is only 1.9% for the November meeting.

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And the cruise-ship shaped Fed Funds path has suddenly morphed into a high-speed racing boat.

goodshipfollypopbrexit

So while the Brexit is creating mass hysteria (how dare the UK want independence from a central government in Brussels!), so far it is really like watching “Brexit at Tiffany’s”.  That is, not really a lot going on in bank stocks.

Caution: let’s see what this week brings, including the EU and David Cameroon trying to invalidate the British people.

Breakfast-at-Tiffanys-Wallpaper-Poster-Photo-4

 

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