Brexit Plans Rattle Pound and Stocks as Gold Rises: Markets Wrap

The pound fell, equities slid and gold climbed on concern U.K. Prime Minister Theresa May is prepared to lead Britain out of the European Union’s single market and as the U.S. President-elect suggested other countries could break from the bloc.

Sterling fell below $1.20 for the first time since October after the Sunday Times said May is ready to withdraw from tariff-free trade with the region in return for the ability to curb immigration and strike commercial deals with other countries. Banks were among the biggest losers in European stocks after Goldman Sachs Group Inc. downgraded Royal Bank of Scotland Group Plc, citing exposure to volatile politics. U.S. markets are closed Monday due to a holiday.

Caution dominated markets amid tough talk from May and Donald Trump about Europe’s economic and political institutions. British government officials trying to limit damage to the pound will speak to major banks in London before the U.K. leader sets out her vision for leaving the bloc in a speech on Tuesday, according to people familiar with the situation. Meanwhile Trump predicted that Britain’s exit will be a success that will encourage others to do the same. He also branded NATO obsolete.

“Markets are trading in risk aversion mode,” said Neil Jones, the head of hedge-fund sales at Mizuho Bank Ltd. in London. “Investors and corporates around the world are concerned by the prospect of a hard Brexit. Pound rallies are limited and weak, while plunges are harsh and prolonged.”

Read more from our Markets Live blog here.

Here are the main moves for the major asset classes:

Currencies

• The U.K. currency traded 1.1 percent lower to $1.2052 at 2:38 p.m. in New York after touching $1.1986, its weakest level since October. Overnight implied volatility in the pound against the dollar climbed to a five-month high before May’s speech. The measure briefly exceed 30 percent, a level only breached before three events in 2016 -- Britain’s EU vote and the Bank of England’s July and August meetings.
• The euro dropped 0.4 percent to $1.0604. The yen rose 0.3 percent to 114.13 per dollar, extending gains for the longest winning streak since June.
• Turkey’s lira weakened 2.4 percent, the most since July. The currency jumped 3.7 percent over Thursday and Friday after the central bank took steps to prop it up by tightening liquidity.
• Brazil’s central bank said it will roll over currency swaps worth $600 million, supporting the real.

Stocks

• The Stoxx Europe 600 Index dropped 0.9 percent with banks and carmakers among the worst performers. 
• Automakers fell after reports that U.S. President Donald Trump threatened BMW AG with import duties over a planned plant in Mexico. BMW lost 1.5 percent.
• The U.K.’s FTSE 100 Index halted a record streak of daily gains and 10 consecutive all-time highs.
• S&P 500 futures expiring in March declined 0.3 percent, with stock markets in the U.S. closed for a holiday.
• Stocks fell in Chile, Colombia and Mexico. Cemex and America Movil contributed most to the 1 percent decline of the Mexican IPC index, which fell for the first time in a week.
• Brazil’s Ibovespa closed 0.3 percent higher as the highest iron-ore prices for two years boosted iron and steel producers.

Bonds

• Yields on the U.K.’s 10-year government bonds fell five basis points to 1.31 percent after climbing seven basis points on Friday.
• Italy’s bonds underperformed their euro area peers after DBRS Ltd. downgraded the nation to BBB High, a move which will mean the securities will be subject to a higher haircut when used as in European Central Bank operations.
• Mozambique bonds due January 2023 fell to 55 cents on the dollar after the government said it will miss an interest payment and struggle to make debt payments throughout the year.

Commodities

• Gold climbed 0.4 percent, extending last week’s surge to trade at $1,202.78 an ounce.
• Oil rose 0.5 percent to $52.64 a barrel.

— With assistance by Andrew Reierson, Adam Haigh, Stephen Kirkland, and Namitha Jagadeesh