- Sterling has record drop, equity trade volume jumps in selloff
- Dow sinks more than 500 points, Europe shares plunge 7 percent
Global markets buckled as Britain’s vote to leave the European Union drove the pound to the lowest in more than 30 years and wiped about $3 trillion from stock market values while sparking demand for haven assets from U.S. Treasuries to gold.
MSCI’s global stock index plunged 4.8 percent in the biggest slide since August 2011. The Dow Jones Industrial Average sank more than 600 points, or 3.7 percent, to erase gains for the year, while European stocks slid 7 percent in its worst day since 2008. Volume in U.S. trading topped 13 billion shares, the most this year. The yen briefly strengthened past 100 per dollar. Treasury yields had their biggest drop in more than four years and gold rallied above $1,300 an ounce. Volatility surged, with the CBOE’s measure of anxiety jumping 43 percent.
“This is going to take a large number of trading days, if not weeks, to iron through,” said Stephen Wood, who helps manage $237 billion as chief market strategist for North America at Russell Investments in New York. “‘There were a lot of surprise positions that had be unwound very, very quickly -- that’s been a significant phenomenon. Some of that will probably be re-traced. Initial reactions tend to be more extreme than long-term averages.”
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.
“Market participants are right to be concerned,” said Dean Maki, chief economist of investment firm Point72 Asset Management. “This is a legitimate risk-off event, and there are concerns about what’s going to happen. We’re likely to see weaker growth as a result of this, and it’s appropriate that markets are reacting to this.”
For full coverage of the referendum, click here
Riskier assets stemmed losses amid a chorus of central bank assurances that policy makers stand ready to intervene. Mark Carney said the Bank of England could pump billions of pounds into the financial system, while the European Central Bank said it will give banks all the funding they require. The Federal Reserve said it was “carefully monitoring” financial markets.
“The central banks are saying all the right things and they’re flooding the market with liquidity so you have a more orderly move,” said Frank Maeba, managing partner with Breton Hill Capital in Toronto. His firm manages about C$1.4 billion. “You may be seeing some tactical rotation, the U.S. looks more solid now at least until the U.S. election.”
These are among the most notable moves in global financial markets Friday:
- British pound falls as much as 11 percent to $1.3229, weakest since 1985
- Dow Jones Industrial Average sinks more than 600 points, most since August
- Yen briefly strengthens to 99.02 per dollar, first time below 100 since 2013
- FTSE 100 Index slides as much as 8.7 percent, most since 2008
- European stocks lose 7 percent in biggest drop since financial crisis
- Gold surges as much as 8.1 percent to $1,358.54 an ounce on twice average volume
- Yield on 10-year Treasuries drops as low as 1.40 percent
- New York crude oil retreats as much as 6.8 percent to $46.70 a barrel
The S&P 500 Index fell 3.6 percent to 2,037.31 at 4 p.m. in New York, the biggest drop since August. The losses wiped out the index’s gain for 2016. The Nasdaq Composite Index tumbled 4.1 percent, for the steepest slide since 2011.
Banks plunged after rallying the most in five weeks Thursday, with Citigroup Inc. down 9.4 percent. JPMorgan Chase & Co. and Goldman Sachs Group Inc. lost more than 6.9 percent. Caterpillar Inc. and Boeing Co. sank at least 5.3 percent after pacing the Dow’s biggest gain in three months Thursday. Energy shares lost 3.5 percent as crude fell.
The Stoxx Europe 600 Index tumbled 7 percent in the worst day since the height of the financial crisis. The volume of shares changing hands on the European gauge was almost four times higher than the 30-day average. The FTSE 100 Index fell 3.2 percent, trimming a slump of as much as 8.7 percent as exporters gained amid a plunge in the pound.
Eastern Europe led a selloff in developing-nation shares, with benchmark stock indexes in Warsaw, Prague and Istanbul retreating at least 4.1 percent. The MSCI Emerging Market Index lost 3.6 percent, the most since August.
The pound was down 8.2 percent to $1.3652. Its biggest one-day loss prior to that was a move of 4.1 percent recorded in 1992, when the currency was forced out of Europe’s exchange-rate mechanism.
The Bloomberg Dollar Spot Index jumped 1.8 percent as the euro slumped 2.7 percent, while currencies in Norway, Sweden and Australia posted even steeper losses.
The yen soared past a milestone versus the U.S. dollar for the first time since November 2013. Japan’s currency strengthened as much as 7.2 percent to 99.02 per dollar. It rallied against all 31 of its major peers as investors sought safety.
Treasuries surged, pushing benchmark yields down the most in seven years, as demand rose for U.S. debt, traditionally a haven for global investors during periods of stress. U.S. 10-year note yields plunged 17 basis points, or 0.17 percentage point, to 1.57 percent. The yield fell as low as 1.4 percent, approaching the record low of 1.38 percent reached in July 2012. The last time it fell more was in March 2009.
U.K. government bonds surged amid speculation the Bank of England will maintain an easy monetary policy to ward off the risk of recession after the departure. Benchmark 10-year gilt yields dropped to an all-time low, while those on two-year securities plunged to the lowest since April 2013. S&P Global Ratings is preparing to remove the U.K.’s top credit grade after the country voted to leave the European Union.
Europe’s corporate-bond market may be closed for weeks as investors and companies try to divine the implications of the U.K.’s decision. Overall bond sales in Europe next week may total less than 5 billion euros, according to 81 percent of market participants surveyed by Bloomberg. Zero issuance was predicted by 37.5 percent, which would be a first for the year.
Gold surged the most since the height of the 2008 global financial crisis. Futures for August delivery rose 4.7 percent to settle at $1,322.40, with trading volume three times the average.
Other commodities plunged, swept up in the global market frenzy. West Texas Intermediate fell 4.9 percent to settle at $47.64. Brent crude futures slumped as much as 6.6 percent and copper in London sank the most since Jan. 7 as the U.S. dollar surged. The Bloomberg Commodities Index of returns on 22 raw materials fell as much as 2.2 percent, the most since January.
“The flight to safety is very, very evident,” said Jeremy Wrathall, head of global natural resources in London at Investec Plc. “Copper is moving down, oil is moving down, it’s a reaction to the dollar. The only commodity that’s not behaving that way is gold.”
Listen to the Benchmark Brexit Special Podcast: