A British vote to leave the European Union sent sterling plunging on Friday and hammered equities across the world as turmoil swept through global markets.
Such a body blow to global confidence could well prevent the
Federal Reserve from raising interest rates as planned this
year, and might even provoke a new round of emergency policy
easing from all the major central banks.
Risk assets were scorched as investors fled to the
traditional safe-harbours of top-rated government debt, Japanese
yen and gold.
Billions were wiped from share values as FTSE futures fell 7
percent, EMINI S&P 500 futures 5 percent and
Japan's Nikkei 7.6 percent. European stock markets were
set to open more than 10 percent lower.
The British pound collapsed no less than 18 U.S. cents,
easily the biggest fall in living memory, to hit its lowest
since 1985. The euro in turn slid 3.2 percent to $1.1012
as investors feared for its very future.
Nearly complete results showed a 51.8/48.2 percent split for
leaving, setting the UK on an uncertain path and dealing the
largest setback to European efforts to forge greater unity since
World War Two.
Sterling sank a staggering 10.1 percent at one point and was
slumped at $1.3582, having carved out a range of $1.3228
to $1.5022. The fall was even larger than during the global
financial crisis and the currency was moving two or three cents
in the blink of an eye.
"It's an extraordinary move for financial markets and also
for democracy," said co-head of portfolio investments of
London-based currency specialist Millennium Global Richard
"The market is pricing interest rate cuts from the big
central banks and we assume there will be a global liquidity add
from them in the next few hours," he added.
The shockwaves affected all asset classes and regions.
The safe-haven yen sprang higher to stand at 102.15 per
dollar, having been as low as 106.81 at one stage. The
dollar decline of 4 percent was the largest since 1998.
That prompted warnings from Japanese officials that
excessive forex moves were undesirable. Indeed, traders were
wary in case global central banks chose to step in to calm the
One source told Reuters the Bank of England was in touch
with other major central banks ahead of the market open there
and the Bank of Japan Governor Haruhiko Kuroda it was ready to
provide liquidity if needed to ensure market stability.
Other currencies across Asia and in eastern Europe as it
woke up suffered badly on worries that alarmed investors could
pull funds out of emerging markets. Poland, where many of the
eastern Europeans in Britian come from, saw its zloty
slump 7 percent.
Europe's natural safety play, the 10-year German government
bond, surged to send its yields tumbling back into negative
territory and a new record low.
MSCI's broadest index of Asia-Pacific shares outside Japan
slid almost 5 percent, while Shanghai stocks
lost 1.1 percent.
Financial markets have been gripped for months by worries
about what Brexit, or a British exit from the European Union,
would mean for Europe's stability.
"Obviously, there will be a large spill-over effects across
all global economies if the "Leave" vote wins. Not only will the
UK go into recession, Europe will follow suit," was the gloomy
prediction of Matt Sherwood, head of investment strategy at fund
manager Perpetual in Sydney.
Investors duly stampeded to sovereign bonds, with U.S.
10-year Treasury futures jumping over 2 points in an
extremely rare move for Asian hours.
Yields on the cash note fell 24 basis points to
1.49 percent, the steepest one-day drop since 2009 and the
lowest yield since 2012.
The rally did not extend to UK bonds, however, as ratings
agency Standard and Poor's has warned it would likely downgrade
the country's triple A rating if it left the EU.
Yields on 10-year gilts were indicated up 20 basis points at
around 1.57 percent, meaning higher borrowing
costs for a UK government already struggling with a large budget
deficit. Standard and Poor's has said it will strip the UK of
its triple A credit rating.
Across the Atlantic, investors were pricing in even less
chance of another hike in U.S. interest rates given the Federal
Reserve had cited a British exit from the EU as one reason to be
cautious on tightening.
"It adds weight to the camp that the Fed would be on hold. A
July (hike) is definitely off the table," Mike Baele, managing
director with the private client reserve group at U.S. Bank in
Fed funds futures <0#FF:> were even toying with the chance
that the next move could be a cut in U.S. rates.
Commodities likewise swung lower as a Brexit would be seen
as a major threat to global growth. U.S. crude shed $3.00
to $47.11 a barrel in erratic trade while Brent fell as
much as 6 percent to $47.83 before clawing back to $48.18.
Industrial metal copper sank 3 percent but gold
galloped more than 6 percent higher thanks to its
perceived safe haven status.