Stocks, Oil Sink While Dollar Rallies as Brexit Risk Ramps Up

Stephen Gallo: 'Jittery' Markets Ahead of Brexit Vote
  • MSCI All-Country extends drop to steepest since February
  • Pound tumbles to fresh low after poll shows 55% favor Brexit

Global stocks posted their steepest drop in four months, the dollar rallied, and bond yields slid to record lows, as investors braced for a series of events later this month that could renew turbulence in markets.

The British pound tumbled and stocks took another leg down after poll results showed a majority favor the nation leaving the European Union. Both the MSCI All-Country World Index and S&P 500 Index wiped out weekly gains. Treasury 10-year note yields declined, as yields from Japan to Germany fell to all-time lows, before next week’s Federal Reserve meeting and Britain’s referendum this month. Oil dropped to around $49 a barrel, leading commodities lower.

“It’s getting ugly,” Mark Kepner, managing director and equity trader at Themis Trading LLC in Chatham, New Jersey, said by phone. “There’s another Brexit poll out and the market just tanked. We’ve got our Fed meeting next week and we’re less than two weeks away from this vote. We’ve had some good gains and nice rally so when a poll late in the afternoon comes out it’s just taking some chips off the table.”

Optimism that drove riskier assets from equities to commodities higher this week may have peaked before meetings by the Fed and the Bank of Japan, Britain’s vote and U.S. political conventions, all of which have the potential to roil markets. Investors also face simmering concerns over the health of the economy, lackluster corporate profits and the effectiveness of central-bank stimulus. While policy makers have tried to shore up economies, they’ve pushed yields lower, hurting earnings prospects for banks.

Stocks

The MSCI world index sank 1.5 percent at 4 p.m. in New York, its steepest drop since Feb. 8, after reaching a six-month high on June 8.

The S&P 500 lost 0.9 percent, the biggest drop in three weeks, after the index came within 0.6 percent of its all-time high this week. Banks and energy companies led losses, while a measure of equity market volatility having the biggest jump since January.

Data today showed confidence among American consumers in June eased from an almost one-year high, as favorable views about personal finances were offset by concerns about the economy’s prospects.

The Stoxx Europe 600 Index sank 2.4 percent on Friday, down for a third consecutive day. All but 14 of the 600 companies retreated, with banks and insurers leading the drop.

Hong Kong’s Hang Seng China Enterprises Index retreated 2.2 percent as trading resumed after a local holiday. Mainland Chinese markets will reopen on Monday, when May data for industrial output and retail sales are due. Next week, MSCI Inc. will decide whether to include mainland A shares in its international indexes.

Bonds

The 10-year note yield fell as much as six basis points to 1.63 percent, the lowest on a closing basis since December 2012. German 10-year yields approached zero, falling to an all-time low 0.01 percent, while gains by Japanese and Swiss securities with similar maturities drove their already-negative yields to new lows.

“Everyone is hiding in Treasuries,” said Tom di Galoma, managing director of government trading and strategy at investment bank Seaport Global Holdings LLC in New York. Anticipation of the Fed policy meeting next week was helping to push yields lower, he said, “but Brexit is far more important.”

Russian bonds gained after the central bank cut interest rates, sending the 10-year yield down eight basis points to 8.60 percent, the lowest since July 2014.

The average yield on highly rated company bonds in euros dropped to 0.96 percent, according to a Bank of America Merrill Lynch index. The European Central Bank has started buying corporate bonds this week, according to people familiar with the situation who asked not to be identified because they aren’t authorized to discuss the information.

Commodities

The Bloomberg Commodity Index, which tracks returns on raw materials, plunged 1 percent. It still posted a fifth week of gains, the longest rally by that measure in more than two years.

West Texas Intermediate crude slumped 3 percent to $49.07 a barrel, trimming its fourth weekly advance in five. A rising U.S. dollar countered declining crude stockpiles and disruptions from Canada to Nigeria.

Gold in the spot market added 0.4 percent after earlier fluctuating.

Currencies

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 counterparts, rose for a second day, adding 0.6 percent. The gauge erased a weekly decline to gain for the fifth week out of six. The Fed decision is due on June 15, while the BOJ convenes the following day.

Sterling tumbled as much as 1.9 percent versus the dollar, the largest drop since October 2009 after the latest U.K. poll conducted for Orb/Independent showed 55 percent want to leave the EU while 45 percent want to remain. The U.K. votes on June 23 on whether to stay.

The yen advanced with the Swiss franc as investors opted for their relative safety. Japan’s currency performed best against the dollar among major currencies, followed by the Swissie.

The MSCI Emerging Markets Currency Index dropped 0.8 percent. The regional currency gauge is still up this week. South Africa’s rand led declines, losing 1.8 percent, followed declines in the Mexican peso and Russia’s ruble.

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