World stocks tumble as Britain votes for EU exit

[NEW YORK] 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 US 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-harbour assets of top-rated government debt, the Japanese yen and gold all jumped. Spot gold rose nearly 4 per cent and the yield on the benchmark 10-year US Treasury note fell to a low of 1.406 per cent, last seen in 2012, though it climbed higher in afternoon trading.

Stocks tumbled in Europe. Frankfurt and Paris each fell 7 per cent to 8 per cent. Italian and Spanish markets posted their sharpest one-day drops ever, falling more than 12 per cent, led by a dive in European bank stocks.

Italy's Unicredit fell 24 per cent while Spain's Banco Santander fell 20 per cent. London's FTSE dropped 3.2 per cent, with some investors speculating that the plunge in sterling could benefit Britain's economy. The index closed up 2 per cent 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 US Bank. "In the end, when markets start to settle down, I think they are going to realise that this is not the end of the world."

Still, Britain's big banks took a US$100 billion battering, with Lloyds, Barclays and RBS plunging as much as 30 per cent, although they cut those losses nearly in half later in the day.

Stocks on Wall Street traded down more than 3 per cent, with the Dow Jones industrial average dropping as much as 655 points, its worst daily drop in 10 months.

The Dow Jones industrial average fell 611.21 points, or 3.39 per cent, to 17,399.86, the S&P 500 lost 76.02 points, or 3.6 per cent, to 2,037.3 and the Nasdaq Composite dropped 202.06 points, or 4.12 per cent, to 4,707.98. MSCI's all-country world stock index fell 4.8 per cent.

Voting results showed a 51.9/48.1 per cent 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 US cents at one point, to its lowest since 1985. The euro slid 3 per cent to US$1.1050 as investors feared for its very future.

Sterling was last down 8.3 per cent at US$1.3642, having carved out a range of US$1.3228 to US$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 per cent to 102.36 per dollar, having been as low as 106.81. The dollar's peak decline of 4 per cent 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 slumped 4.7 per cent. 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 slid almost 3.4 per cent. Tokyo's Nikkei had its worst fall since 2011, down 7.9 per cent.

Investors stampeded into low-risk sovereign bonds, with US 10-year notes up around 1.5 points in price to yield 1.5718 per cent. Earlier, the yield dipped to 1.406 per cent.

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 per cent.

Across the Atlantic, investors were pricing in less chance of another hike in US 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.

Oil prices slumped around 5 per cent amid fears of a broader economic slowdown that could reduce demand. US crude shed US$2.51 to US$47.60 a barrel while Brent fell 4.9 per cent to US$48.42. Industrial metal copper sank 1.7 per cent but gold leaped nearly 5 per cent higher thanks to its perceived safe-haven status.

REUTERS

For more coverage of the EU referendum, visit bt.sg/BrexiT