U.S. Stocks Fall With Global Shares, Pound on Brexit; Gold Gains

European Bank Shares Plunge in Brexit Battering
  • Banks among biggest losers as equities slide in Europe, EM
  • Gold climbs for second day with yen as haven demand persists

The aftershocks of the U.K.’s vote to leave the European Union reverberated across financial markets after a weekend of political turmoil, with the pound extending its record selloff and European equities dropping to levels last seen in February.

The S&P 500 dropped 1.8 percent to the lowest since mid-March, while the slide in Europe’s equity benchmark reached 11 percent over two days, the most since 2008. Sterling fell below Friday’s lows with a 3.4 percent slide to the weakest since 1985, as S&P cut its rating on the U.K.’s sovereign debt. Demand for haven assets boosted gold, and Treasury 10-year yields reached a four-year low.

Risk assets have been under pressure since Britons voted to secede from the EU, raising concerns that an already-fragile global economic recovery will falter as trade snarls in one of the world’s biggest consumer blocs. More than $4 trillion has been was wiped from global equity values as internecine squabbles flared in the U.K.’s main political parties, exacerbating the sense of instability.

“There is still some order. You’re seeing strength in utilities and telecoms, so there definitely is the flight to safety and risk-off nature,” said Peter Jankovskis, who helps oversee $1.9 billion as co-chief investment officer of Lisle, Illinois-based OakBrook Investments. “Economically sensitive industries -- industrials, energy, materials, financials -- are all taking the biggest hits, and that makes perfect sense.”

The next days and weeks will be key for central banks as they seek to limit volatility in financial markets. The European Central Bank is hosting a three-day meeting in Portugal that will include a speech from its president, Mario Draghi. Federal Reserve Chair Janet Yellen withdrew from a Wednesday panel discussion at the gathering, the Fed said Monday, without offering a reason.

Stocks

The S&P 500 fell to 2,000.54 at 4 p.m. in New York, sliding below its average price for the past 200 days after Friday plunging the most in 10 months. The odds of a Fed interest rate increase by February plunged to about 10 percent from 52 percent on Thursday.
 
Commodities producers led losses, while financial shares continued their slide. Lazard Ltd. and Evercore Partners Inc. posted their biggest two-day declines since at least 2008, leading a slump of independent investment banks. Utilities and phone stocks gained.

The Stoxx Europe 600 Index slid 4.1 percent following a 7 percent rout Friday. The FTSE 100 lost 2.6 percent. The Stoxx 600 Banks Index, which included European companies involved in banking, fell 7.7 percent after dropping 14 percent on Friday. The volume of European shares changing hands today was more than double the 30-day average.

U.K. banks were the worst performers, with Royal Bank of Scotland Group Plc losing 15 percent and Barclays Plc sliding 17 percent. Losses in Italian lenders were limited after people with knowledge of the discussions said Italy is considering injecting capital into some banks.

The MSCI Emerging Markets Index dropped 1.3 percent. The gauge slid 3.5 percent on Friday. Shares in emerging Europe and Africa were among the hardest hit, with benchmarks in Poland and South Africa falling at least 1.6 percent.

Currencies

The pound was the worst performing among major currencies, falling to $1.3208 after Friday’s 8.1 percent plunge. The euro weakened 0.9 percent versus the greenback, after sliding 2.4 percent in the last session.

For more on the political infighting spurred by the Brexit vote, click here.

“People are finding it difficult to comprehend what Brexit implies for the future -- we don’t know yet what the magnitude of the shock will be,” said Steven Barrow, head of Group-of-10 strategy at Standard Bank Group Ltd. in London. “So far, in terms of sterling-dollar, we’ve seen half the decline we’re likely to see this year.”

The yen strengthened 0.1 percent to 102.1 per dollar. It jumped in the last session and reached 99.02, the strongest since 2013. Finance Minister Taro Aso told reporters Monday that Prime Minister Shinzo Abe has asked for various measures to stabilize Japanese markets.

The MSCI Emerging Market Currency Index fell 0.7 percent after dropping 1.3 percent on Friday.

Bonds

Treasuries gained, with 10-year yields extending Friday’s retreat by falling another ten basis points to 1.46 percent, as uncertainty surrounding the global implications of Brexit spurred traders to slash odds for higher interest rates and analysts to lower U.S. yield forecasts.

U.K. government bonds surged, pushing 10-year yields below 1 percent for the first time,
while the yield on similar-maturity German government bonds dropped seven basis points to minus 0.12 percent.

Spanish government bonds rallied on Monday after Acting Prime Minister Mariano Rajoy defied opinion polls to consolidate his position in a general election held Sunday. The yield on the nation’s 10-year debt dropped 17 basis points to 1.45 percent, after jumping 17 basis points on Friday.

Commodities

Oil extended declines below $47 a barrel as the market remained volatile. West Texas Intermediate crude futures fell 2.8 percent to $46.33 in New York, extending Friday’s 4.9 percent slump, the biggest decline in four months.

The collapse in the pound since U.K. voters chose to quit the EU means more expensive imports of oil, natural gas and industrial metals.

Copper rose, reversing earlier declines, as U.K. Chancellor of the Exchequer George Osborne sought to reassure markets. Gold gained 0.9 percent on demand for a haven to its highest close since July 2014.

“Everything is caught up in Brexit,” said Evan Lucas, a market strategist at IG Ltd. in Melbourne. “The oil fundamentals for the moment will be put to one side as markets try to figure out exactly how this will all work.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE