Saturday 16 / November / 2024
London: Global markets buckled as Britain’s vote to leave the European Union (EU) drove the pound to the lowest in more than 30 years and European banks to their steepest losses on record.
"It’s scary, and I’ve never seen anything like it,” said James Butterfill, 41, head of research and investments at ETF Securities in London. "A lot of people were caught out, and many investors will lose a lot of money.”
Sterling slid by the most on record and European stocks headed for the biggest drop since 2008 as trading soared. The yen strengthened past 100 per dollar for the first time since 2013, gold rose the most in more than seven years and benchmark Treasury yields had their biggest drop since 2009.
The victory for the "Leave" campaign prompted Prime Minister David Cameron to resign, while Scotland’s First Minister Nicola Sturgeon said a second referendum on independence was back "on the table.” The outcome stunned many investors who’d put wagers on riskier assets over the past week as bookmakers’ odds suggested the chance of a so-called Brexit was less than one in four.
The final tally, announced just after 7am London time, showed voters had backed "Leave” by 52 per cent to 48 per cent. JPMorgan Chase and HSBC Holdings said the result may prompt them to move thousands of jobs out of London. S&P Global Ratings said the UK will lose its AAA credit rating.
Some equity benchmarks and currencies pared losses after Governor Mark Carney said the Bank of England (BoE) was ready to pump billions of pounds into the financial system to support markets and wouldn’t hesitate to take additional measures if needed.
These are among the most notable moves in global financial markets:
British pound falls as much as 11 per cent to $1.3229, weakest since 1985 Yen strengthens 3.2 per cent to 102.85 per dollar, after reaching 99.02 FTSE 100 Index slides as much as 8.7 per cent, most since 2008 S&P 500 Index futures slump as much as 5.1 per cent, triggering a trading curb Gold surges as much as 8.1 per cent to $1,358.54 an ounce Yield on 10-year Treasuries drops 25 basis points to 1.50 per cent New York crude oil retreats as much as 6.8 per cent to $46.70 a barrel Poland’s zloty, South Africa’s rand drop more than 4 per cent per dollar, lead emerging-market currencies lower Currencies
The pound was down 8 per cent to $1.3694 as of 7:15am in New York. Its biggest one-day loss prior to that was a move of 4.1 per cent recorded in 1992, when the currency was forced out of Europe’s exchange-rate mechanism.
"Market liquidity and overall liquidity in the UK is drying up as we speak in a very rapid way,” said John Woods, chief investment officer for Asia-Pacific at Credit Suisse Private Banking, told Bloomberg TV in Hong Kong. "It’s highly likely that we see monetary easing in a coordinated response” from central banks across the world, he said.
The euro slumped 2.8 per cent, while currencies in Norway, Sweden and Australia posted even steeper losses.
The zloty fell 2.2 per cent against the euro and 5.2 per cent versus the dollar, leading losses in emerging Europe, as Britain’s exit threatened to throttle aid to the bloc’s less-affluent member states. Hungary’s forint dropped one per cent against the euro. The rand slid 5.3 per cent against the dollar.
Stocks
The Stoxx Europe 600 Index tumbled 7.5 per cent, with trading volumes more than five times the 30-day average. A gauge of banks led the selloff, declining 14 per cent. The FTSE 100 Index slid 4.4 per cent. Barclays and Lloyds Banking Group both lost one-fifth of more than 15 per cent.
UK construction firms Taylor Wimpey and Bovis Homes Group sank at least 20 per cent. EasyJet, the low-cost carrier which gets about half its revenue from European markets excluding the UK, tumbled 17 per cent. Julius Baer Group dropped 8.5 per cent after saying market turbulence triggered by Brexit could temporarily hit gross margins at wealth-management firms.
"It’s already been a long day today,” said William Hobbs, head of investment strategy at the wealth-management unit of Barclays in London. "Risk appetite is going to evaporate in the coming days. How long that risk-off will go remains the question. What we would urge clients to remember is that the impact of the UK is unhelpful but digestible.”
Commodities
The Bloomberg Commodity Index fell 1.7 per cent, the biggest loss in more than a month. Brent crude traded 5.3 per cent lower at $47.48 a barrel, the most since February. Copper slid 2.1 per cent.
Gold posted its biggest one-day gain since the financial crisis, dropping 5.1 per cent fo $1,321.05 an ounce. Silver rallied the most in 18 months.
"Gold has delivered what it promised: doing extremely well in adverse times,” said Dominic Schnider, head of commodities and Asia-Pacific foreign exchange at the wealth-management unit at UBS Group in Hong Kong. "Energy and industrial metals, where demand is tied to expectations for global economic growth, were hardest hit by Brexit.
Bonds
The yield on 10-year German bunds fell 18 basis points to minus 0.09 per cent, while the rate on similar-maturity Italian notes rose 10 basis points to 1.50 per cent.
A gauge of where bank borrowing costs will be in the months ahead, known as the FRA/OIS spread, hit the most extreme level since 2012. The three-month FRA/OIS spread widened to 0.32 percentage point, compared with 0.27 on Thursday.
"Equity futures, gold, UK bank and insurance stocks are all sounding off their market-stress sirens, and the funding market will go into its usual precautionary mode,” said Sean Keane, an Auckland-based analyst at Triple T Consulting and the former head of Asia-Pacific rates trading at Credit Suisse Group. "Dollar swap lines with the Federal Reserve may be used, and other central banks will be on alert.”
The cost of insuring investment-grade corporate debt against default surged the most since 2008. The Markit iTraxx Europe Index of credit-default swaps jumped 17 basis points to 92 basis points, according to prices compiled by Bloomberg. A gauge of swaps on sub-investment grade companies climbed the most since October 2014.
The riskiest bonds issued by some European banks posted record declines, based on data compiled by Bloomberg. UniCredit’s one billion euros of additional Tier 1 notes fell eight cents on the euro to 76 cents, the lowest since February, while Deutsche Bank’s 1.75 billion euros of AT1s fell 5 cents to 78 cents.
Among the largest declines in high-yield bonds were notes sold by UK companies reliant on consumer spending. Debt from department-store operator Debenhams Plc and restaurant chain PizzaExpress both fell 5 pence to 95 pence, the biggest declines since the two notes were sold in 2014.
Some investment-grade corporate bonds in euros rose amid expectations that the European Central Bank may step up a purchase programme. Notes from companies including Veolia Environnement, Electricite de France and auto-parts market Robert Bosch GmbH increased more than three cents on the euro.
