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Shares continue to slide on Wall Street pending UK vote on Brexit

Published 15/06/2016

Wall Street is awaiting news from the UK
Wall Street is awaiting news from the UK

The US stock market fell for a fifth straight day on Wednesday as investors set aside the Federal Reserve's interest rate decision and remained focused on next week's vote on whether Britain will remain in the European Union.

The Dow Jones industrial average fell 34.65 points, or 0.2%, to 17,640.17. The Standard & Poor's 500 index fell 3.82 points, or 0.2, to 2,071.50 and the Nasdaq composite fell 8.62 points, or 0.2, to 4,834.93.

As expected, the Federal Reserve's policymakers voted to keep interest rates unchanged at their current level of 0.25% to 0.50%.

In their statement, the Fed said that while US economic activity continues to strengthen, "the pace of improvement in the labour market has slowed", a reference to the April and May job reports that were weaker than anticipated.

"After that May jobs report, I think today's decision was a fait accompli," said Kristina Hooper, head of US investment strategies at Allianz Global Investors, after the decision was announced. "They needed to hit the pause button for June, but I think a July rate hike still remains a distinct possibility."

Bond prices remained high, keeping yields low. The yield on the 10-year US Treasury note fell to 1.58% from 1.61% a day earlier. Bond investors said the uncertainty about the British vote has forced European investors to buy up US government bonds in a search for yield and security, pushing bond yields to their lowest levels in years.

"We are in a rare moment where the highest quality creditor, the United States, is also the creditor with the highest interest rate," said Brandon Swensen, senior portfolio manager and co-head of US fixed income at RBC Global Asset Management.

With the Fed decision revealed, most investors are focused on the other side of the Atlantic. There is grave uncertainty about whether British voters will choose to leave the European Union in a June 23 referendum. Polls show the vote could go either way and investors are starting to worry about the consequences.

A British exit from the EU, which investors have taken to referring to as Brexit, would likely hurt the British economy most and destabilise the rest of Europe. The repercussions, however, are not clear and investors are reacting to the general uncertainty over the situation.

During her press conference, the Fed's Janet Yellen said Fed policymakers said the upcoming vote was one of the reasons why the central bank kept interest rates unchanged.

"The potential disruption from (a British exit from the EU) has not loomed as large with investors as it should have. Now that the Fed decision over, the (vote will be all they'll be talking about," Ms Hooper said.

Among individual companies, Whole Foods Market fell 1.62 US dollars, or 5%, to 30.90 US dollars after the Food and Drug Administration said there were "serious violations" at a kitchen in Massachusetts that may have resulted in contaminated food and the grocery chain has not done enough to fix them so far.

Benchmark US crude oil fell 48 cents to close at 48.01 US dollars a barrel in New York. The price has fallen 6.3% over the last five days. Brent crude, used to price international oils, fell 86 cents to close at 48.97 US dollars a barrel in London.

In other energy commodities, wholesale petrol futures fell two cents to 1.50 US dollars a gallon, heating oil closed down two cents to 1.48 US dollars a gallon and natural gas fell one cent to 2.595 US dollars per 1,000 cubic feet.

The dollar rose to 105.98 yen from 105.97 yen. The euro edged up to 1.1268 from 1.1205 US dollars.

Gold prices rose 20 cents to 1,288.30 US dollars an ounce. Silver rose eight cents to 17.50 US dollars an ounce and copper closed up five cents to 2.091 US dollars a pound.

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