Newsflash: The US central bank cited the Brexit vote as a reason to hold interest rates unchanged last month.

Minutes of the Federal Reserve’s meeting in mid-June showed that policymakers wanted to hold off until Britain had held its EU referendum, a week later.

The minutes state that:

“Members generally agreed that, before assessing whether another step in removing monetary accommodation was warranted, it was prudent to wait for additional data on the consequences of the U.K. vote.”

They also cited the surprisingly weak US jobs figures as another reason that they held fire on a rate hike.

Britain’s decision to vote to leave the EU means many economists now expect the Fed to leave rates on hold until the end of this year.

Bank shares have been under pressure again today - as recorded in an earlier post - and a couple of analysts have looked at the exposure of the major lenders to the property sector, which was a headache for many of them in 2008 crisis.

At Bernstein, analysts have calculated the bailed out banks Royal Bank of Scotland and Lloyds Banking Group are the most exposed - with aroudn £19bn and £13bn of loans respectively.

The banking sector’s exposure is already down from £150bn to £86bn according to Bank of England data. “Banks haven’t really played the asset class in the last five years - it’s mostly been the shadow banking sector,” said the Bernstein analysts.

Raul Sinha, analyst at JP Morgan, says the major UK lenders have £69bn of the loans and the smaller banks and building societies some £17bn (which is also at the riskier end).

Sinha’s view is that:

“Risks for the major UK banks are manageable, small lenders in focus”.

RBS’ exposure is 66% of its tangible net asset value, according to Sinha.

The annual report of RBS shows that the proportion of the loan book with loan to values of more than 75% has fallen and the deals where the value of the property is less than the loan are largely loans from the past.

Brexit fears have hit shares across Europe again today.

The FTSE 100 index has closed down 81 points, or 1.25%, at 6463. Tesco (-8%) and Morrisons (-7%) were the biggest fallers, due to the price war fears we covered earlier.

The FTSE 250 index of smaller, UK-focused, companies closed down 0.4% at 15669, so almost 10% below its pre-referendum levels.

Germany’s DAX stock index shed 1.7%, while Spain’s IBEX fell 1.9%.

Financial shares have had another bad day; the Stoxx 600 bank share index closed at its lowest level since November 2011 (the peak of the eurozone debt crisis, when Greece and Italy’s governments were toppled).

Joshua Mahony of IG says investors are fleeing into safe assets, because of the dangers created by the Brexit vote.

Global markets are on the back foot once more today, as the fears that seemed to fade over the last week reappear once more.

Despite the rallying cries of Boris Johnson, markets are not waving away the implications of the referendum result by focusing in on last week’s FTSE 100 remarkable recovery. Instead, a focus upon the continued deterioration in the pound and euro highlights the negative economic consequences of that vote.

In a world where around $10 trillion of global government credit has yields at or below zero, it is clear that investors are desperately seeking for safety wherever it can be found. Today’s 27-month high in gold and Monday’s near two-year high for silver highlights the underlying rush to havens in an increasingly uncertain future.

More than half the UK’s £25bn property investment sector has now been suspended this week, as Brexit fears hit the economy.

Laith Khalaf, senior analyst at Hargreaves Lansdown, predicts that Aviva, Standard Life, M&G, Columbia, Henderson and (apparently) Canada Life will leave their funds frozen for months.

Here’s his take:

“Over half of the property fund sector is now on ice, and will remain so until managers raise enough cash to meet redemptions. To do that they need to sell properties, and as any homeowner knows, that is not a quick or painless procedure.

These funds are therefore likely to be closed for weeks and months rather than simply a matter of days. Clearly there has been a knee-jerk reaction to Brexit in the commercial property sector, which may moderate over time.

Investors in commercial property funds should not make decisions in a panic. Granted the Brexit vote may have the potential to negatively affect the commercial property market in the short run, but long term investors should be willing to ride out periods of weakness, particularly when there has been such a sharp decline in fund prices without much evidence of a slowdown in the underlying property market.”

Another one! Columbia Threadneedle has announced that it has suspended dealings in its £1.4bn property fund, as of noon today (11am GMT) *CORRECTED*.

It blames uncertainty following the EU referendum, and predicts that retail outflows will continue for some time.

The British Chamber of Commerce in Germany (BCCG) has warned companies trading between the two countries that they should prepare for a worst-case scenario where Britain ends up trading with the European Union “on the same terms as Panama”.
At a press conference in Berlin on Wednesday, BCCG council member Stefan Kraus said it was “hard to imagine that a trade deal between Britain and the EU would be passed unanimously by all 38 parliaments who have a veto” and there was therefore “a risk that there won’t be an agreement after two years” and trade relations would revert back WTO rules. Referring to the stalling negotiations over the CETA trade deal between the EU and Canada, Kraus said:

“We are currently experiencing how difficult it is to close trade deals. A trade between the EU and Great Britain would be probably be as far-reaching as CETA.”

Kraus called on companies involved in trade between Britain and Germany to do “Brexit due diligence” over the course of the next two or three months:

“Those who wait for two years to make a decision will find it is too late to react if no deal materialises”.

Henderson’s property fund is valued at around £3.9bn.

So there is now around £13bn of savers’ money now locked up in commercial property funds.

For how long, who knows?

Henderson, along with Aviva, Standard Life and M&G had all bought property assets such as supermarkets, office blocks, warehouses.

Investors knew that could try to leave these ‘open-ended’ funds at any time, but they also knew that the company’s could freeze them if too many redemption requests were made at once.

Breaking: Investment fund Henderson has just announced that it is suspending trading in its property fund.

This means investors will not be able to redeem their money right now, and must wait for the company to ungate the fund, sometime in the future.

Henderson took the move after seeing a surge of requests, after the EU referendum - just like Aviva, Standard Life and M&G earlier this week.

The US services sector grew in June, with new business expanding at the fastest rate since January.

The headline index on the Markit PMI edged up slightly to 51.4 from 51.3 in May, where anything above 50 indicates growth.

However, business expectations weakened, and jobs in the sector were created at the slowest pace in 17 months.

Chris Williamson, chief economist at Markit:

Rebound, what rebound? The final PMI numbers confirm the earlier flash PMI signal that the pace of US economic growth remained subdued in the second quarter.

While volatile official GDP numbers are widely expected to show a rebound from a lacklustre start to the year, the PMIs suggest the underlying malaise has not gone away. The surveys point to an annualized pace of economic growth of just 1% in the second quarter.

Service sector confidence has slumped to the lowest since 2009 alongside ongoing woes in the energy and manufacturing sectors, as well as worries about the outlook amid presidential election uncertainty.

Hiring has also slowed, though remains surprisingly upbeat. The surveys signal non-farm payroll growth of 150,000 in June, suggesting many companies expect the slowdown to be short-lived.”

US markets have opened down, as the Brexit gloom enveloping European investors ripples across the Atlantic.

• Dow Jones: -0.3% at 17,796

• S&P 500: -0.3% at 2,082

• Nasdaq: -0.5% at 4,798

Tesco is the biggest faller on the FTSE 100 on the back of speculation that a vicious supermarket price war is about to break out, hurting profits in the sector.

Tesco is down 9% at 160p while Morrisons shares are down 6.6% at 174p. Sainsbury’s is down 3.6% at 215p.

It followed a note by HSBC analyst David McCarthy, who highlighted comments made by David Cheesewright, the head of international operations at Walmart, the US retail giant and Asda owner.

Cheesewright told shareholders that he would prioritise sales volume over profit, McCarthy said, signalling that Asda will slash prices in an attempt to keep customers coming through its doors.

McCarthy said:

If Asda does reposition fundamentally, then it could seriously damage sector profitability.

If Asda decided to invest half its margin into price, a competitor reaction could wipe out almost all industry profitability and would force an industry restructure.

Our full story here:

Not everyone is gloomy about the UK economy post-Brexit vote.

Mark Price, the UK trade and investment minister and former Waitrose boss, is very upbeat about Britain’s future.

Speaking on an official visit to Hong Kong and China, Lord Price said the outcome of the referendum handed the UK and rest of the world the opportunity “to create a second Elizabethan Golden Age” of trade and investment.

A fresh start gives a unique opportunity to shape a bright future for the UK as a global trading nation and open economy.

The key message is that we have a strong economy: we remain a fantastic place to invest, and have plenty of innovative, successful businesses. I have every confidence we will make this work.

I’m optimistic about the future: particularly in helping create a second Elizabethan Golden Age. The first Golden Age was based on peace, prosperity, new trading markets and a flourishing of the arts.

The prize that now awaits us is a continued close trading relationship with Europe... There’s also a prospect for striking new deals with Canada, New Zealand and Australia which could form the beginning of a Commonwealth trading pact.

The exciting prospect of continuing trading relations with Europe and enhancing trading relationships East and West provides the UK with an opportunity to be a super connected trading hub.

Reinforcing democracy, British rule of law, and tolerance through these enhanced business connections is how we will build trust which in turn leads to peace and prosperity.

I am optimistic that we can seize the opportunity to create a second Elizabethan Golden Age.

The sharp drop in the value of the pound will not necessarily mean higher prices in store according to Mike Coupe, the chief executive of Sainsbury’s.

There has been lots of speculation that prices will rise following the Brexit vote, mainly because a weaker pound makes imports into the country more expensive, and Britain is a net importer.

But speaking at Sainsbury’s annual meeting, Coupe told the supermarket’s shareholders:

It is not certain we will see inflationary pressures passed on to customers. It is difficult to judge how it will play out.

Things may change in the future, commodity prices could come down, exchange rates could change.

Europe’s stock markets are suffering a chunky selloff, as the sight of the pound falling through $1.30 this morning spooks investors.

Every index is now down, including the FTSE 100 – despite the boost which weak sterling gives to international companies.

Here’s the damage:

In London, supermarket chain Tesco has now lost 7% as analysts predict a new price war. Morrisons are down 6%, and Sainsbury are off 5%.

IAG, the airline group that owns British Airways, is down 6.5% after analysts at Barclays predicted that companies will cut back on premium travel.

And the building firms are still in the red too.

Connor Campbell of SpreadEx says:

After a poor start the markets looked increasingly uglier as Wednesday progressed, the widespread losses once again driven by the pound.

Down over half a percent against both the dollar and the euro sterling is continuing to feel the post-Brexit pinch this morning, falling far enough that even the FTSE 100, previously buoyed by the prospect of cheaper exports, is starting to suffer. Having crept 0.3% higher soon after the bell the UK index has now fallen nearly 1%, pushed lower by the banking and housing stocks.

The sudden closure of Aviva, Standard Life and M&G’s property funds this week have been a painful lesson for some investors.

All three were ‘open-ended’ funds, which allow investors to take out their money at short notice (rather than only during fixed windows).

So, the fund managers need to keep plenty of cash to hand to cover redemptions, and can be forced to lock the gates if many investors try to cash in at once. As happened this week.

Naomi Heaton of asset management firm LCP explains how open-ended funds can become a “liquidity trap”

“Whilst open-ended funds, such as Aviva, purport to offer liquidity, in a falling market these funds suspend redemptions when investors rush to withdraw money, with disastrous consequences.

Closed-end funds do not have this problem as investors come in with a medium term horizon and do not bank on a speedy exit.”

An alternative option is a “real estate investment trust; a company which owns property assets.

Readers may feel that we’ve been reporting new 31-year lows for the pound for weeks. And they’d be right.

As this chart shows, sterling has slumped to a series of three-decade lows since the referendum vote. Every fresh weakness has taken us back to levels last seen in early 1985.

At the end of February 1985, the pound hit $1.052 against the US dollar. So, if we go through that level, it’s a record low.

The sterling crisis of the mid-1980s was one of the key economic moments of the Thatcher government. Chancellor Geoffrey Howe started the ball rolling in 1979 when he relaxed capital controls (after many years in which the Treasury tried to keep the pound stronger than the markets liked).

With the economy in recession, Howe cut interest rates (and also hiked taxes in the famous/notorious 1981 budget). Investors voted with their feet, and by 1984 the pound was ploughing towards parity with the US dollar for the first time ever.

Quite a reversal, given one pound was worth more than four dollars during the Gold Standard years (Winston Churchill blundered by putting the UK back onto the Standard at the old rate after World War One).

The chart shows the pound/dollar rate over the last two centuries:

But the sterling crisis of 1985 wasn’t all down to the UK. Over in America, the Federal Reserve had hiked interest rates as Fed chair Paul Volcker tried to tame inflation.

He succeeded, perhaps too well, sending the dollar soaring against other currencies. The Fed slashed rates, in vain, and by 1985 drastic action was needed. The US, the UK, France, West Germany and Japan agreed to intervene in the markets to weaken the US dollar - creating the Plaza Accord.

That plan worked, sending the pound back up against the US dollar.

But while America benefitted from a more competitive exchange rate, other nations suffered. So two years later the five countries plus Canada met at the Louvre in Paris to agree to push the US dollar up again.

This chart, from Zerohedge, has more info (click here for a large version)

Accountancy firm KPMG has appointed its first ever “Head of Brexit”, after seeing several big deals frozen following the referendum result.

Karen Briggs, a KPMG partner, is planning to build a dedicated team to help clients navigate through the stormy waters ahead, in the short and long term.

Briggs explains that some clients are hoping to profit from the Brexit vote:

We have been advising our clients to consider the next two weeks, two months and two years to assess the path ahead. Looking at our 2:2:2 model, many of our clients have been seeking advice on their immediate risks.

However, we are now seeing clients look further ahead to what opportunities might lie ahead in the next two years – whether these are bolstering trading relationships with China or out-manoeuvring competitors. We are also engaging international clients and are observing, interestingly, predatory intentions from other European nations considering what competitive advantage a Brexit might mean for them.

Briggs also reports that Brexit has already forced some mergers to be suspended.

We are the largest M&A adviser by volume and we have seen half a dozen deals we are working on put on hold in the wake of the vote outcome. Whether this is a short-term wobble or has more lasting ramifications remains to be seen at this stage.”

Britain’s FTSE 250 index has now fallen by 1.1% today, or 177 points to 15,557, as investors continue to bail out of UK companies.

That means the 250 index has now shed more than 10% of its value since the vote on June 23rd.

Bank of England governor Mark Carney said yesterday that the FTSE 250 is a good gauge of market sentiment towards the UK, so the recent slump in valuations is a concern.

The index slumped by 13% in the two days after the vote, before bounding back. But it’s been sliding all week, as Brexit gloom has deepened.

The biggest fallers today include new ‘challenger banks’, Metro and Aldermore, who will suffer if Britain falls into recession.

DFS, the furniture group, have fallen by 7%. Its sales could suffer if nervous consumers decide to spend and borrow less.

CLS Holdings, a property management firm, is also under the cosh, reflecting worries that Britain’s commercial property market is being hit by Brexit fears.

It’s such a contrast with the internationally focused FTSE 100, which is actually up since the referendum (because the weak pound has boosted companies who sell overseas)

UK car sales fell last month, for only the second time in four years.

New figures from the Society of Motor Manufacturers and Trades shows that 255,766 new vehicles were registered in June, 0.8% fewer than in June 2015.

It may signal that consumers become more cautious about big spending decisions around the time of the referendum, or that the economy was slowing anyway.

It’s the first monthly fall since last October, and the first fall in any June since 2011.

Mike Hawes, SMMT Chief Executive, wants the government to take action to support the industry:

“It is far too soon to determine whether the referendum result has had an impact on the new car market. The first six months saw strong demand at record levels but the market undoubtedly cooled over the second quarter.

It’s important government takes every measure to restore business and economic confidence to avoid the market contracting in the coming months.

City economists are concerned by sterling’s wobble overnight, and fear there is worse to come in next few months.

Andrew Edwards, CEO of trading firm ETX Capital, says investors are reacting to M&G Investments, Aviva and Standard Life freezing their UK property funds.

Investors are now nervously casting their eyes around for other funds that may shutter. The negative effect on sentiment in the investment market will underpin sterling weakness.

Pessimistic predictions for sterling are coming true. The pound is the chief proxy for the post-Brexit mood in the markets. Sterling is bearing the brunt of market stress, in sharp contrast to the FTSE 100, which is holding firm because 75% or so of earnings comes from overseas and because of heavy weighting towards the big international groups on the index. The question is: how long can this last if more funds start pulling the plug?”

Andy Scott of currency firm HiFX fears that political instability will hurt the pound:

“The fears over Brexit are quickly being realised with an initial heavy selloff following the shock result, followed by this second wave of investors who held their nerve initially, but are now deciding that they’d rather accept the losses so far than risk losing more.

Clearly Mark Carney and George Osborne believe there are very rough times ahead for the UK economy as they begin rolling out a number of measures to cushion the potential impact. The Pound is now clearly seen as a high risk asset and when market sentiment becomes very risk averse, it will come under pressure as seen over the past two days.

Fears of a property slowdown following the Brexit vote are hitting the shares of British banks and building firms again.

The big fallers on the FTSE 100 include many construction firms and financial stocks, as investors worry that the UK economy could suffer a recession.

Supermarket firms are also down, after new data showed food prices fell again last month (good for consumers, but bad for profits).

The FTSE 100 itself is actually up 20 points, or 0.3%, thanks to international companies such as miners (whose earnings are often in dollars).

But the smaller FTSE 250 index, which is more UK-focused, has shed 0.4% this morning. It’s already lost 9% since the EU referendum.

Tony Cross of Trustnet Direct says:

It’s an uneasy start in London with the waning pound no longer seemingly sufficient to deliver any meaningful upside for stocks. GBP/USD is now below 1.30 as expectations build that we’ll see a rate cut from the Bank of England.

Royal Bank of Scotland’s share price has taken a battering since the referendum, losing more than 30% to just 155p.

That’s far below the 502p at which taxpayers would break even on their 73% stake, acquired during the 2008 crisis.

Sir Howard Davies, the bank’s chairman, told BBC Radio 4’s Today programme this morning that that “realistically” this means the government it not going to be able to sell off the rest any time soon.

“One can deduce it will be later than sooner,” Davies said, admitting “you cannot ignore the share price”.

Chancellor George Osborne had set himself a goal to sell off most the stake by the end his parliament – 2020 – but as Davies said, this is something for the new government to decide.

He explained the share price by saying:

“if you are a major UK bank you can’t ignore what’s going in the UK economy”.

Davies was among those bank bossed called to see Chancellor George Osborne yesterday, who asked them about the conditions they were experiencing in their branches. He said it was “not so bad” but that there had been a slowdown in property.

Like others, Davies is trying to get across that banks are open for business, not as they were in 2008 when banks had to hunker down and amass capital to try to survive the turmoil.

This is what governor of the Bank of England Mark Carney had said yesterday and Davies said he agreed his view that it was an issue of demand for credit rather than supply.

The value of the pound could also affect RBS as it expecting a huge penalty from the US authorities for the way it packaged up bonds during the subprime mortgage crisis almost 10 years ago. Davies appeared to admit that RBS had taken some protection in the currency markets in anticipation of the fine. It was not clear how much protection RBS had bought but some analysts have said this penalty could reach up to £8bn.