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Pound pummelled, stocks slammed by Brexit vote

by June 24, 2016 General

LONDON: Britain’s surprise vote to leave the European Union sent shockwaves across global markets Friday as it ushered in new element of uncertainty in a world already plagued by weak growth.

Sterling crashed 10% to a 31-year low at one point and the euro also plummeted against the dollar, as traders had banked in the run-up to the vote on Britain opting to remain in the EU based on polls and bookmakers’ predictions.

London’s benchmark FTSE 100 index plummeted 7.5% at the open, but began to recover after British Prime Minister David Cameron said he would step down and pledges by central banks to provide sufficient liquidity to volatile markets.

The announcements stemmed losses on major European markets, with London’s main FTSE 100 index closing the day down just 3.2%, and was in fact up over the week.

But in the eurozone the losses were of a magnitude unseen since the dark days of the global economic crisis.

The Frankfurt stock exchange suffered a 6.2% blow, while Paris slumped 8.0%.

“The liquidity support promised by the Bank of England — and subsequently the ECB and Federal Reserve — appears to have been the main catalyst for the turnaround,” said Spreadex analyst Connor Campbell.

But Milan slumped 12.5% and Madrid 12.4% on jitters ahead of Spanish elections on Sunday.

“While the FTSE rose phoenix-like from the ashes of its earlier decline, the eurozone indices weren’t quite as lucky… suggesting investors may not only be worried by the Brexit, but by the weekend’s Spanish election,” added Campbell.

US stocks were down around 3% in late morning trading.

UniCredit Research economist Daniel Vernazza said British voters had snubbed warnings by “the overwhelming majority of expert economic opinion”.

Markets wrong-footed

“Not surprisingly, this morning the referendum result has sent shockwaves through global financial markets,” he said in a note to clients.

“It’s scary, and I’ve never seen anything like it,” James Butterfill, head of research and investments at ETF Securities, said in London.

“A lot of people were caught out, and many investors will lose a lot of money,” he told Bloomberg News.

After rallying above US$1.50 at the time voting ended, the pound steadily crumbled to its lowest level since 1985, at US$1.3229 at one point, before unwinding some losses.

The dollar slumped briefly to 99.02 yen, the first time it has gone below 100 yen since November 2013, before edging back up above 102 yen. The Japanese unit is considered a safe bet in times of uncertainty and turmoil.

Highlighting the uncertainty, US investment bank JPMorgan Chase warned that it could relocate UK jobs abroad.

Banks took some of the biggest hits. In Britain, Lloyds tumbled 21%, RBS 18.8% and Barclays 17.7%.

In France, shares in Societe Generale plunged 20% and BNP Paribas by 17.4%, while in Germany, Deutsche Bank slumped 14.1% and Commerzbank by 13.0%.

Spain’s Santander sank 20% and Italy’s Unicredit fell nearly 24%.

Gimme shelter

Investors also sought the relative safety of government bonds. 

The price on the German benchmark 10-year sovereign bond rose sharply, pushing its yield into negative territory for only the second time in its history.

UK government bonds also rose, taking their 10-year yield to a historic low.

Gold, a traditional refuge asset, struck a two-year high. But elsewhere, billions of dollars were wiped off investment portfolios.

India’s rupee, the Canadian dollar and the Singapore dollar all suffered heavy losses, while the South African rand lost 6% on the day as emerging markets were hurt by sudden aversion to risk.

The shock referendum outcome also sent oil prices tumbling more than US$2 per barrel on fears that economic fallout could weigh on future energy demand. – AFP

Key figures around 1530 GMT (11:30pm Malaysian time)

* London – FTSE 100: DOWN 3.2% at 6,138.69 (close)

* Frankfurt – DAX 30: DOWN 6.8% at 9,557.16 (close)

* Paris – CAC 40: DOWN 8.0% at 4,106.73 (close)

* EuroStoxx 50: DOWN 8.5% at 2,779.67

* New York – DOW: DOWN 2.6% at 17,536.31

* New York – S&P 500: DOWN 2.7% at 2,055.62

* New York – Nasdaq: DOWN 3.1% at 4,759.02

* Tokyo – Nikkei 225: DOWN 7.92% at 14,952.02 (close)

* Shanghai – Composite: DOWN 1.3% at 2,854.29 (close)

* Hong Kong – Hang Seng: DOWN 2.9% at 20,259.13 (close)

* Pound/dollar: DOWN at $1.3635 from $1.4974 late Thursday

* Euro/dollar: DOWN at $1.1112 from $1.1422

* Dollar/yen: DOWN at 102.29 yen from 106.53 yen