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Sterling suffered a record one-day plunge to a 31-year low
and money poured into safe-haven gold and government bonds. (A board above the
floor of the New York Stock Exchange (NYSE) shows the current standing of the
British Pound sterling in New York, U.S., June 24, 2016. - REUTERS)
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Global stock markets lost about US$2 trillion in value on Friday after Britain voted to leave the European Union, while sterling suffered a record one-day plunge to a 31-year low and money poured into safe-haven gold and government bonds.
The blow to investor confidence and the uncertainty the vote
sparked could keep the U.S. Federal Reserve from raising interest rates as
planned this year, and even spark a new round of emergency policy easing from
major central banks.
The move blindsided investors, who had expected Britain to
vote to stay in the EU, and sparked sharp repricing across asset classes.
Mainland European equity markets took the brunt of selling as investors feared
the vote could destabilize the 28-member bloc by prompting more referendums.
The traditional safe-harbor assets of top-rated government
debt, the Japanese yen and gold all jumped. Spot gold rose nearly 4 percent and
the yield on the benchmark 10-year U.S. Treasury note fell to a low of 1.406
percent, last seen in 2012, though it climbed higher in afternoon trading.
Stocks tumbled in Europe. Frankfurt <.GDAXI> and Paris
<.FCHI> each fell 7 percent to 8 percent. Italian <.FTMIB> and
Spanish <.IBEX> markets posted their sharpest one-day drops ever, falling
more than 12 percent, led by a dive in European bank stocks <.SX7P>.
Italy's Unicredit <CRDI.MI> fell 24 percent while Spain's Banco Santander
<SAN.MC> fell 20 percent.
London's FTSE <.FTSE> dropped 3.2 percent, with some
investors speculating that the plunge in sterling could benefit Britain's
economy. The index closed up 2 percent for the week for its best weekly gain in
over two months.
"I think markets were really caught off guard today,
that's why you are seeing a huge risk-off trade," said Jeff Kravetz, a
strategist at the Private Client Reserve at U.S. Bank. "In the end, when
markets start to settle down, I think they are going to realize that this is
not the end of the world."
Still, Britain's big banks took a $100 billion battering,
with Lloyds <LLOY.L>, Barclays <BARC.L> and RBS <RBS.L>
plunging as much as 30 percent, although they cut those losses nearly in half
later in the day.
Stocks on Wall Street traded down more than 3 percent, with
the Dow Jones industrial average dropping as much as 655 points, its worst
daily drop in 10 months.
The Dow Jones industrial average <.DJI> fell 611.21
points, or 3.39 percent, to 17,399.86, the S&P 500 <.SPX> lost 76.02
points, or 3.6 percent, to 2,037.3 and the Nasdaq Composite <.IXIC>
dropped 202.06 points, or 4.12 percent, to 4,707.98.
MSCI's all-country world stock index <.MIWD00000PUS>
fell 4.8 percent.
Voting results showed a 51.9/48.1 percent split for leaving,
setting the UK on an uncertain path and dealing the largest setback to European
efforts to forge greater unity since World War Two.
The British pound dived by 18 U.S. cents at one point, to
its lowest since 1985. The euro slid 3 percent to $1.1050 <EUR=> as
investors feared for its very future.
Sterling was last down 8.3 percent at $1.3642 <GBP=>,
having carved out a range of $1.3228 to $1.5022. The fall was even larger than
during the global financial crisis and the currency was moving two or three
cents in the blink of an eye.
The Bank of England, European Central Bank and the People's
Bank of China all said they were ready to provide liquidity if needed to ensure
global market stability.
SHOCKWAVES
The shockwaves affected all asset classes and regions.
The safe-haven yen jumped 3.8 percent to 102.36 per dollar
<JPY=>, having been as low as 106.81. The dollar's peak decline of 4
percent was the largest since 1998.
Emerging market currencies across Asia and eastern Europe
and South Africa's rand all buckled on fears that investors could pull out.
Poland's zloty <PLN=> slumped 4.7 percent.
Europe's safety play, the 10-year German government bond,
surged, with yields tumbling back into negative territory and a new record low.
MSCI's broadest index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> slid almost 3.4 percent. Tokyo's Nikkei <.N225> had
its worst fall since 2011, down 7.9 percent.
Investors stampeded into low-risk sovereign bonds, with U.S.
10-year notes <US10YT=RR> up around 1.5 points in price to yield 1.5718
percent. Earlier, the yield dipped to 1.406 percent.
The rally even extended to UK bonds, despite a warning from
ratings agency Standard & Poor's that it was likely to downgrade Britain's
triple-A credit rating if it left the EU. Yields on benchmark 10-year gilts
fell 27 basis points to 1.096 pct <GB10YT=TWEB>.
Across the Atlantic, investors were pricing in less chance
of another hike in U.S. interest rates given the Federal Reserve had cited a
British exit from the EU as one reason to be cautious on tightening.
The cost for Wall Street to fund dollar-based trades rose on
Friday to the highest in nearly three months. [L1N19G1PQ]
Oil prices slumped around 5 percent amid fears of a broader
economic slowdown that could reduce demand. U.S. crude <CLc1> shed $2.51
to $47.60 a barrel while Brent <LCOc1> fell 4.9 percent to $48.42.
Industrial metal copper <CMCU3> sank 1.7 percent but
gold <XAU=> leaped nearly 5 percent higher thanks to its perceived
safe-haven status.
– Reuters
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