Brexit vote sends new shocks through markets; political chaos deepens

LONDON Britain's vote to leave the European Union sent new shockwaves through financial markets, with the pound falling despite the country's leaders' attempts to ease the political and economic turmoil it has unleashed.Finance minister George Osborne said on Monday the British economy was strong enough to cope with the volatility caused by Thursday's referendum, the biggest blow since World War Two to the European goal of forging greater unity.But his words failed to stop sterling sinking to its lowest level against the U.S. currency for 31 years, continuing the slide that began last week when Britons confounded investors' expectations by voting to end 43 years of EU membership.European bank shares had their worst two-day fall on record and world stocks, as measured by MSCI were on track for their worst two-day fall since the aftermath of the collapse of Lehman Brothers in late 2008. With the ruling Conservatives looking for a new leader after Prime Minister David Cameron's resignation on Friday and lawmakers from the opposition Labour party stepping up a rebellion against their leader, Britain sank deeper into political and economic chaos."There's no political leadership in the UK right when markets need the reassurance of direction," said Luke Hickmore of Aberdeen Asset Management, expressing the view of many in the City of London financial center.Cameron says he will stay on until October as a caretaker and that his successor should trigger the formal process of leaving the EU. His Conservative Party in parliament recommended choosing a successor by early September.The prime minister sought to calm fears over the fallout of the referendum and said parliament should not try to block Britain's departure. A majority of parliamentarians, like him, had argued that Britain should stay in the EU."I am clear, and the cabinet agreed this morning, that the decision must be accepted," Cameron told parliament, which also faces a public petition for a new referendum.But his refusal to start formal moves to pull the country out of the EU has prompted many European leaders to demand quicker action by Britain, the EU's second largest economy after Germany, to leave the 28-country bloc."It should be implemented quickly. We cannot remain in an uncertain and indefinite situation," French finance minister Michel Sapin said on France 2 television.Guenther Oettinger, a German member of the EU's executive European Commission, said delay would hurt Europe as well as Britain. "Every day of uncertainty prevents investors from putting their funds into Britain, and also other European markets," he told Deutschlandfunk radio.Cameron will join EU leaders for dinner in Brussels on Tuesday, the eve of an EU summit from which Britain will be excluded. EU lawmakers want him to announce Britain's departure then, but a senior EU official said that was unrealistic.MERKEL HAS "NO BRAKE, NO ACCELERATOR"While European leaders would like swift negotiations to end the uncertainty, which is fuelling euroskeptic forces in their own countries, they say they cannot begin until Britain formally notifies the EU it is planning to exit.The leaders of France, Germany and Italy met in Berlin on Monday to plan their next moves and said Europe needed to respond to its people's concerns by setting clear goals to improve security, the economy and prospects for young people. German Chancellor Angela Merkel, who has appeared to take a softer line on Britain's decision than some European leaders, said she had "neither a brake nor an accelerator" to control events, adding: "We just don't want an impasse".Making clear the exit negotiations would not be easy, Volker Kauder, who leads Merkel's conservatives in parliament, told ARD television: "There will be no special treatment, there will be no gifts." The shockwaves are being felt across the globe at a time when economies are still fragile from the 2008 economic crisis, interest rates are close to zero and central banks have fewer tools than normal to revive demand if countries enter recession.Financial markets misjudged the referendum, betting on the status quo despite abundant signs that the vote would be close.When reality dawned, the reaction was brutal. Sterling fell as much as 11 percent against the dollar on Friday for its worst day in modern history, while $2.8 trillion was wiped off the value of world stocks - the biggest daily loss ever. By Monday afternoon, sterling had shed around 3.6 percent against the dollar to $1.3209, despite an attempt by Osborne to ease concerns by saying he was working closely with the Bank of England and officials in other leading economies."Our economy is about as strong as it could be to confront the challenge our country now faces," he told reporters. "It is inevitable after Thursday's vote that Britain's economy is going to have to adjust to the new situation we find ourselves in."U.S. Treasury Secretary Jack Lew also tried to restore calm, telling CNBC television it had been "an orderly impact so far" though he later added: "We have resilience built into our economy, but we're not cut off from the world." Visiting Brussels, U.S. Secretary of State John Kerry said it was important that "nobody loses their head" as the EU and Britain deal with the fallout from the referendum.Later, in London, he urged both sides to be driven by common sense rather than a desire to get even, saying the impact on the U.S. economy would depend on how the negotiations go."PENSIONS ARE SAFE"The vote to leave the EU has increased the likelihood of Scotland holding a second referendum on independence, after voters there strongly backed remaining in the EU.Boris Johnson, a leading proponent of a Brexit and likely contender to replace Cameron, praised Osborne for saying "some reassuring things to the markets".The former London mayor said it was now clear "people's pensions are safe, the pound is stable, markets are stable. I think that is all very good news."Financial markets took a different view. The yield on British 10-year government bonds fell below 1 percent for the first time as investors bet the Brexit vote would trigger a Bank of England interest rate cut aimed at steadying the economy. Many economists have cut economic growth forecasts for Britain, with Goldman Sachs expecting a mild recession within a year. The risks affect economies far beyond Britain. "Against the backdrop of globalization, it's impossible for each country to talk about its own development discarding the world economic environment," Chinese Premier Li Keqiang told the World Economic Forum in the city of Tianjin.Japanese Prime Minister Shinzo Abe instructed his finance minister to watch currency markets "ever more closely" and take steps if necessary. DIVIDED PARTIESJohnson tried to calm fears over Britain's future trade ties with the EU by writing in the Daily Telegraph newspaper that there would be continued free trade and access to the single market, although EU leaders say that is not a given.He also suggested Britain would not have to accept free movement of workers, aware that many voters chose "leave" due to concerns over immigration. However, single market rules say countries must accept free movement of people as well as goods.Johnson is expected to declare soon that he is running to lead the Conservatives, who have been divided for decades between pro- and anti-EU factions. Divisions within the opposition are also deep. A wave of Labour lawmakers resigned from leader Jeremy Corbyn's team on Monday, adding to the 11 senior figures who quit on Sunday, saying his campaign to keep Britain in the EU was half-hearted.Corbyn, a left-winger who has strong support among ordinary party members, has said he is not stepping down.Discontent with the political establishment in general and the Conservatives in particular was a factor behind the vote to leave, although many Brexit backers focused on immigration, complaining too many migrants had arrived from eastern Europe.Police said offensive leaflets targeting Poles had been distributed in Huntingdon, central England, and graffiti had been daubed on a Polish cultural center in central London on Sunday, three days after the vote.The Polish embassy in London said it was shocked by the "xenophobic abuse" aimed at the Polish community and others. (Additional reporting by David Lawder, William James, Jamie McGeever, Nigel Stephenson, Kevin Yao, Costas Pitas, Bate Felix, Andrea Shalal, Michael Holden, Guy Faulconbridge, David Milliken, Patrick Graham, Michelle Martin, Elizabeth Piper, Paul Carrel, Conor Humphries, Minami Funakoshi and Tetsushi Kajimoto; Writing by David Stamp and Philippa Fletcher; Editing by Peter Graff and Andrew Roche) Read more

U.S. banks flex capital muscle in annual stress test

Big U.S. banks are proving themselves to be stronger and sounder in an annual regulatory stress test, even as the Federal Reserve changes doomsday scenarios to keep them on their toes.On Thursday, the Fed said each of the 33 U.S. banks that underwent its standardized stress test were able to stay above minimum required capital levels in severe economic and market conditions. Banks that participated last year also passed, but their capital levels have largely improved since then.Overall, the 33 banks would suffer $385 billion in loan losses over nine quarters under the most severe scenario, the Fed said. In aggregate, a key ratio measuring high-quality capital against risk-weighted assets, known as the Tier 1 common equity ratio, would drop to a low of 8.4 percent. That is well above the 4.5 percent minimum set by regulators.(Click here to see how the banks performed: the Fed started stress testing banks in 2009, capital levels have risen and credit quality has improved, with bad loans rolling off the books. The Fed creates new inputs for market and economic chaos each year, and shocked investors in January when it included negative interest rates in the worst-case scenario."Today's results are particularly notable given the more stringent test assumptions above last year's test," said Richard Foster, senior counsel for regulatory and legal affairs at the industry trade group Financial Services Roundtable. "Banks now hold extremely high levels of capital and liquid assets as compared with historical averages."However, Thursday's results are just one part of the Fed's annual stress test process, and do not even offer a glimpse at what many investors really want to know: Will banks be able to use more capital for dividends and stock buybacks?This first test – called the Dodd-Frank Act Stress Test, or DFAST – is part of the sweeping financial reform law passed in the wake of the 2007-2009 financial crisis. It relies on standardized assumptions about capital levels and distributions for the tested banks, allowing for a consistent view across the industry. Next week, the Fed will release results of a more nuanced examination known as the Comprehensive Capital Analysis and Review, or CCAR. That test evaluates banks' individually tailored plans for surviving a crisis.The Fed gives each bank a pass or fail grade for CCAR, based not only on hard numbers, but also on qualitative measures. That means the Fed can fail a bank because it did not approve of how management went about the capital planning process."DFAST is sort of like a dress rehearsal for the CCAR," said Ernie Patrikis, a partner at the White & Case law firm and a former bank regulatory official at the Federal Reserve Bank of New York.Thirteen banks have failed CCAR since the Fed began disclosing results, according to research firm Trepp.In an analysis carried out before DFAST results were released, Trepp analysts predicted two-thirds of the banks will likely be allowed to increase their dividends. The percentage approved for dividends has been ticking down from 72 percent in 2013 to 67 percent in 2014, and 61 percent in 2015. "Banks generally are doing pretty well on earnings, so there is capacity to increase their dividends," said Matt Anderson, managing director at Trepp.NEGATIVE RATE PAIN The Fed will announce CCAR results on June 29. Failures are embarrassing, and the Fed allows banks to resubmit capital plans based on DFAST results to give them a second chance to pass. They have until Saturday to do so.Of the 33 banks that took part in DFAST, Huntington Bancshares Inc produced the lowest minimum Tier 1 common equity ratio, of 5 percent, under a severely adverse scenario. Morgan Stanley and BMO Financial Corp produced the weakest Tier 1 leverage ratio - another measure of capital strength relative to assets - of 4.9 percent, under that scenario. Banks also released their own stress test results, based on inputs set by the Fed. The figures did not necessarily match up. For instance, Morgan Stanley's own capital ratios under severe stress were higher than the U.S Federal Reserve test result, as were Wells Fargo & Co's and BMO's.Banks that look marginal in DFAST may well have submitted capital plans that include the issuance of securities that would dramatically affect their capital scores. And, banks with strong numbers can still fail CCAR because the Fed considered the quality of their capital planning faulty.Citigroup Inc, for example, has had surprising results for both reasons in the past. This year, Citi racked up big gains, with its Tier 1 common equity ratio rising to 9.2 percent from 6.8 percent and its Tier 1 leverage ratio improving to 6.9 percent from 4.6 percent.Wells Fargo improved less, possibly because it relies more on consumer deposits for funding and therefore could have been hurt more by the negative interest rate scenario. The Fed generally assumes that banks would not be able to pass along negative rates to consumers by charging them for holding their deposits.Bank stocks rose on Thursday in anticipation of the stress test results, as well as the Brexit vote. Citigroup was one of the biggest beneficiaries, with its shares rising 4.2 percent to close at $44.46, and gaining another 2.9 percent in after-hours trading. (Reporting by Lisa Lambert in Washington and David Henry in New York; Writing by Lauren Tara LaCapra; Editing by Bernard Orr) Read more

More funerals for Orlando nightclub massacre set for Friday

ORLANDO, Fla. Families of some of the 49 people killed in a massacre at a gay nightclub will bury their dead on Friday, as Orlando holds funerals over the next two weeks for victims of the worst mass shooting in modern U.S. history.Like many of the victims of Sunday's attack on the Pulse club, Anthony Luis Laureano Disla, 25, was from Puerto Rico. He is to be buried on Friday, according to the Newcomer Funeral Home, a day after more than 150 friends and family mourned him at a wake.The gunman, Omar Mateen, a 29-year-old U.S. citizen born in New York to Afghan immigrant parents, claimed allegiance to a conflicting list of Islamist militant groups, including Islamic State, in a series of phone calls and internet messages during his three-hour rampage, which ended when police shot him dead.U.S. officials have said they do not believe he was assisted from abroad in the attack, which also wounded 53 people. Members of 94 families who had relatives among the dead and wounded have visited a downtown football stadium where civil agencies are proving relief services, Orlando Mayor Buddy Dyer told reporters on Friday. Dyer said he would go to the funerals that families asked him to attend. "I will ask the community to do the same ... These are private ceremonies, people are hurting," he said.Kenneth Feinberg, the lawyer who helped administer compensation funds for victims of the Sept. 11, 2001, attacks on New York and Washington and the 2013 Boston Marathon bombing, is flying in to Orlando to advise the city’s Orlando United relief fund, Dyer said.Separately, the National Compassion Fund, a unit of the nonprofit National Center for Victims of Crime, was tapped on Thursday by gay rights group Equality Florida, to distribute the roughly $5 million raised online for the victims. [L1N1971VU] On Thursday, more than 300 people, including Florida Governor Rick Scott, attended the viewing for Eric Ivan Ortiz-Rivera, who was born in Dorado, Puerto Rico. He was 36 when he was killed during a night of dancing to celebrate a friend's new house. His husband had stayed home that night in the couple's apartment."He was in a Snapchat video that's out there, dancing away, so we know he had some fun before the madness," said his cousin, Orlando Gonzalez. President Barack Obama, who met survivors of the shooting and families of the dead in Orlando on Thursday, urged Congress to pass measures to make it harder to legally acquire high-powered weapons like the semi-automatic rifle used in the attack.Mateen carried out the slaughter with the rifle and a handgun that had been legally purchased although he had twice been investigated by the FBI for possible connections with militant Islamist groups.Congress is under pressure to respond and on Thursday the Senate inched toward votes on a series of gun control measures, although it is far from likely the measures will pass. The Senate is expected to vote on Monday on four proposals for gun restrictions. (Additional reporting by Julia Harte and Peter Eisler in Orlando and Zachary Fagenson in West Palm Beach, Florida; Writing by Fiona Ortiz and Scott Malone; Editing by Janet Lawrence and Frances Kerry) Read more

Wall St. down sharply on oil drop, global growth worries

A sharp drop in oil prices and global growth worries sent jitters through Wall Street, leading the three major U.S. indexes lower for the second straight day in volatile trading on Friday.After three days of gains, losses in the past two sessions have pushed the Nasdaq into the red for the week, while the S&P 500 and the Dow are roughly flat.Oil prices fell 2.5 percent as traders booked profits after a rally earlier this week pushed prices to their highest in 2016, and as the dollar regained lost ground. [O/R]Financial stocks came under pressure again as global issues, including uncertainty over interest rate hikes and the impending vote on Britain's membership in the European Union, sent investors flocking to safe haven assets.The yield on government bonds fell globally, to record lows in some cases. Gold, another safe haven, hit a fresh three-week high."The U.S. indexes are trailing what is happening overseas this morning. We've seen a decline in crude prices and strength in U.S. treasuries and that combination adds ups to a red day," said Paul Springmeyer, investment management director at U.S. Bank Wealth Managing in Minneapolis. "There still remains quite a bit of uncertainty out there ... and returns will be fairly muted until those question marks are resolved."At 12:49 a.m. ET the Dow Jones Industrial Average .DJI was down 100.67 points, or 0.56 percent, at 17,884.52.The S&P 500 .SPX was down 16.78 points, or 0.79 percent, at 2,098.7. The index has not closed below 2,100, a key technical level, so far this week.The Nasdaq Composite .IXIC was down 50.35 points, or 1.02 percent, at 4,908.27. The CBOE Volatility Index .VIX, known as Wall Street's fear gauge, jumped 11.5 percent, its steepest rise in two months. Nine of the 10 S&P sectors were lower, with the energy index's .SPNY 1.1 percent fall. Financials .SPSY are now down 3.1 percent for the year, with healthcare .SPXHC the only other index in the red year-to-date.The telecom services index, which comprises of five stocks, was the only gainer, led by Verizon's (VZ.N) 1.5 percent rise. Among the other of the few bright spots was Intel (INTC.O), which eked out a 0.2 percent gain.Intel reversed course after Bloomberg reported the chipmaker would replace Qualcomm as an Apple (AAPL.O) supplier for some iPhones. Qualcomm (QCOM.O) was down 1.9 percent.Declining issues outnumbered advancing ones on the NYSE by 2,323 to 620. On the Nasdaq, 2,111 issues fell and 598 advanced.The S&P 500 index showed 31 new 52-week highs and no new lows, while the Nasdaq recorded 23 new highs and 34 new lows. (Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Savio D'Souza) Read more

New draft of Chinese anti-smoking law weaker than health advocates had hoped

BEIJING A recent draft of the Chinese national anti-smoking law significantly weakens previously proposed legislation, several people familiar with the bill told Reuters, and some public health advocates said the powerful state-owned tobacco monopoly had lobbied for the changes.The advocates and some former government officials involved in discussions with officials close to the lawmaking process said the tobacco industry had urged the legislative affairs office of the State Council, China's cabinet, to keep allowing cigarette advertisements, and enable workplaces, restaurants and other public places to create enclaves for smokers.An earlier version of the law, released for public comment in 2014, included provisions banning smoking in workplaces and on public transportation, as well as curbs on tobacco ads and promotion, according to health groups."Because the tobacco industry is a big part of the government, they don't need to make these arguments publicly," said a healthcare advocate who has been involved in high level meetings on the development of the law."It's not like big multinational tobacco companies that have to lobby to influence the process. They are inside the process."A second public health advocate, also closely involved in developing the legislation, added: "They are a very strong organization, so they have really made a major impact. It's because they contribute so much in tax revenue to the state."The State Tobacco Monopoly Administration, which oversees China National Tobacco Corporation, did not respond to requests for comment.China National Tobacco Corporation makes hundreds of brands including the popular Red Pagoda Mountain, while foreign cigarette makers have a tiny presence in comparison.A spokesman for China's National Health and Family Planning Commission, which was involved in developing early drafts of the law, said the law was under the supervision of the State Council's Legislative Affairs Office.The State Council Information Office, the cabinet's public relations department, did not respond to a request for comment. HUGE TAX REVENUESThe state monopoly has 98 percent of a market of more than 300 million smokers, making China the world's largest producer and consumer of cigarettes. It contributes about 7 to 10 percent of government tax revenues annually.Anti-smoking advocates had hoped for a complete ban on smoking in public places nationwide, replicating tougher municipal laws in cities like Beijing that have been implemented with relative success.Not every major city has tighter anti-smoking rules, and most of the country would abide by the national legislation.The most recent draft of the national anti-smoking law, circulated in April among those involved in its development, stops short of banning tobacco ads. Ads are currently banned in public places and mass media, but they still appear widely in convenience stores and kiosks.The latest draft also allows government offices and other workplaces, as well as hospital compounds, restaurants and cafes, to set up smoking rooms, according to several sources who have seen the draft.However, the law would impose fines for those violating these rules and create more school programs educating children about the dangers of smoking. "Of course, as a supporter of public health I ... wish that hospitals and schools would be completely smoke free," said Wang Benjin, deputy director of the Beijing Health Inspection Bureau.The earlier draft contained stronger curbs, said health groups, who had hoped the national law would completely ban smoking in public places. Bernhard Schwartländer, the World Health Organisation (WHO) representative in China, expressed disappointment in a statement this week at what he termed "problematic loopholes" for smokers in the draft law."Sadly, it is clear that the vested interests of the tobacco industry have been able to corrupt the national law discussions with a series of superficially compelling yet completely false arguments," he said in the statement.He added that the industry had argued that being too tough on cigarettes would hurt the broader Chinese economy and that enforcement would be too challenging.Sales of the cheapest cigarettes fell 5.5 percent in the year to March 2016 from the previous year in China, according to the WHO, after a major tax hike.Chinese public health advocates were optimistic last year about prospects for restricting smoking, a habit that has become a major burden on the healthcare system.Tobacco-related illnesses kill more than 1 million people annually in China, according to the WHO.Beijing banned smoking in public places on June 1 last year, and marked the anniversary in a ceremony this week, draping a large banner bearing a no-smoking sign across its National Stadium.Recent studies by municipal health authorities show broad support for bans on smoking in public places, and authorities say enforcement of the rules has been successful. (Editing by Mike Collett-White and Martin Howell) Read more

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