- Banks among biggest losers as equities slide in Europe, EM
- Asian index futures signal swing back to losses after bounce
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 Index dropped 1.8 percent to its lowest level since mid-March as the rout in Europe’s equity benchmark rose to 11 percent over two days, the most since 2008. Sterling fell below Friday’s lows, sinking more than 3 percent to its weakest point since 1985 as S&P Global Ratings reduced its rating on the U.K.’s sovereign debt. Demand for haven assets boosted gold as 10-year Treasury yields slid to a four-year low. Crude oil extended its selloff amid concern Brexit will hit global growth, sapping energy demand.
Riskier assets have come under pressure since Britons voted to secede from the EU, raising concerns that the already-fragile global economic recovery will falter as trade snarls in one of the world’s biggest consumer blocs. Trillions of dollars have been wiped from global equity values as internecine squabbles flare among the U.K.’s main political parties, exacerbating the sense of instability. As market volatility spikes, investors are also concerned about the ability of central banks to dial back the damage in markets.
“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 swerving 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 panel discussion set for Wednesday at the gathering, the Fed said Monday, without offering a reason.
The S&P 500 fell to 2,000.54 as of 4 p.m. in New York, sliding below its average price for the past 200 days after plunging the most in 10 months on Friday.
Commodities producers led losses in the U.S. as financial shares continued their slide. Lazard Ltd. and Evercore Partners Inc. posted their biggest two-day declines since at least 2008, leading a slump among independent investment banks. Utilities and phone stocks gained at least 0.6 percent as groups.
The Stoxx Europe 600 Index slid 4.1 percent, following a 7 percent selloff on Friday, as the FTSE 100 Index lost 2.6 percent. The Stoxx 600 Banks Index, which includes European companies involved in banking, fell 7.7 percent after tumbling 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 who didn’t want to be identified but have knowledge of the discussions said Italy was considering injecting capital into some banks.
The MSCI Emerging Markets Index dropped 1.4 percent after sliding 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.
Futures on Asian indexes foreshadowed losses following rebounds in China and Japan on Monday. Contracts on the Nikkei 225 Stock Average fell 2 percent in Osaka, while futures on equity benchmarks from Australia to Hong Kong were down at least 0.8 percent in most recent trading.
The pound was the worst-performing major currency for a second session, sinking 3.3 percent to $1.3214 after Friday’s 8.1 percent plunge. The euro weakened 0.8 percent versus the greenback, after dropping 2.4 percent in the previous session.
“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 0.2 percent to 102 per dollar, following Friday’s 3.7 percent surge. The currency jumped to 99.02 on Friday, its strongest level since 2013. Finance Minister Taro Aso told reporters Monday that Prime Minister Shinzo Abe had asked for various measures to stabilize Japanese markets.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, added 0.9 percent in a second day of gains as demand for safe havens outweighed diminishing prospects of policy tightening in the U.S. The odds of a Fed interest rate increase by February has plunged to about 10 percent since the Brexit vote, from 52 percent on Thursday.
The MSCI Emerging Market Currency Index fell 0.7 percent Monday after dropping 1.3 percent in the previous session.
Treasuries extended their advance, with 10-year yields falling another 12 basis points, or 0.12 percentage point, to 1.44 percent. The uncertainty surrounding the global implications of Brexit spurred traders to slash odds for higher rates and analysts have lowered 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. Yields on the nation’s 10-year debt dropped 17 basis points to 1.45 percent, after jumping 17 basis points on Friday.
Oil extended declines below $47 a barrel as the market remained volatile following the vote in favor of Brexit. West Texas Intermediate crude futures sank 2.8 percent to $46.33 in New York, extending Friday’s 4.9 percent slump, which was the biggest decline in four months. The collapse in the pound since U.K. voters chose to quit the EU means imports of oil, natural gas and industrial metals will become more expensive for Britain.
Copper rose, reversing earlier declines, as the U.K.’s Chancellor of the Exchequer George Osborne sought to reassure markets. Gold gained 0.9 percent to its highest closing level since July 2014 as the market gyrations nonetheless burnished the appeal of haven investments.
“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.”