European stocks sink and pound tumbles over Brexit fallout

EU Millennials in London: Devastated about Brexit
EU Millennials in London: Devastated about Brexit

European markets took another hit on Wednesday as continued fallout from the U.K.'s recent vote to leave the European Union worries investors. But that's not the only thing breeding fear in the markets.

Concerns about Italy, China and the U.S. economy have also resurfaced and are shaking confidence.

"We have a quartet of 'big fears' in the form of Brexit, Italian banks, Chinese capital flight, and the danger that the softer trend to U.S. data continues," explained Kit Juckes, a strategist at Societe Generale.

All major European stock markets retreated. France's CAC 40 and Germany's Dax index dropped nearly 2% apiece.

The British pound slumped to its lowest level in 31 years overnight as deep uncertainty about the future of the nation's economy encouraged traders to pull money out of the country.

Asian stocks also had a rough day, with the main indexes in Japan and Korea falling by nearly 2% each.

In the U.S., the Dow dropped over 120 points in early trading but has since rebounded, shaking off the overseas losses.

Related: China-U.K. 'golden era' at risk from Brexit

Here's an overview of the issues that are hitting investor sentiment right now:

Brexit: Investors are still trying to sort through the aftermath of the Brexit vote on June 23.

There are major questions over the country's economic and political future as it heads towards becoming the first country to drop out of the 28-nation bloc.

Growth forecasts have been slashed, investors are dumping real estate assets, and government fiscal targets have been abandoned. Half a dozen corporate mergers and acquisitions have already been put on hold, KPMG said.

Several EU leaders have called on the U.K. to start the withdrawal process as soon as possible, to limit uncertainty. But that won't happen until a new prime minister is chosen, and may be delayed until early next year.

There are also questions over London's ability to maintain its status as Europe's financial capital.

Italian banks: The weakness of Italy's financial sector is in the spotlight again. Some banks may need a bailout.

On Wednesday, Italian regulators temporarily banned short selling of shares in Banca Monte dei Paschi di Siena (BMDPF).

Shares in the bank, and other big Italian lenders, have been slammed this year,

Italy's banks are being crushed by problem loans that total 360 billion euros ($398 billion).

China: Turmoil triggered by Brexit may be masking a more troubling market move -- China's falling currency.

Since British voters opted to leave the European Union, the yuan lost about 1.3% against the dollar. And the currency had its weakest quarter ever through June, according to Bloomberg.

The yuan was trading around 6.75 to the dollar on Wednesday, after touching its lowest level since December 2010 on Tuesday.

U.S. growth: The U.S. Federal Reserve recently cut its forecast for U.S. economic growth in 2016 and warned about the risks of Brexit.

The central bank will release the minutes from its latest monetary policy meeting at 2 p.m. ET. The meeting took place in the middle of June, following a report showing job creation in the country was much weaker than expected.

During that meeting, the central bank decided to keep interest rates steady, in part due to concerns about the upcoming Brexit vote in the U.K.

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