World Stocks Tumble as Britain Votes for EU Exit

 

The blow to investor confidence and the uncertainty the vote has sparked could keep the Federal Reserve from raising interest rates as planned this year, and even spark a new round of emergency policy easing from major central banks.

 

The traditional safe-harbor assets of top-rated government debt, the Japanese yen and gold all jumped. Spot gold rose more than 5 percent and the yield on the benchmark 10-year U.S. Treasury note fell to lows last seen in 2012 at 1.5445 percent.

 

Stocks tumbled in Europe. London's FTSE dropped 2.4 percent while Frankfurt and Paris each fell 6 percent to 8 percent. Italian and Spanish markets, and European bank stocks overall, were headed for their sharpest one-day drops ever.

 

Worries that other EU states could hold their own referendums were compounded by the fact that markets had rallied on Thursday, seemingly convinced the UK would vote to stay in.

 

Britain's big banks took a $100 billion battering, with Lloyds, Barclays and RBS plunging as much as 30 percent.

 

Stocks on Wall Street opened more than 2 percent lower but cut losses after about an hour of trading. The Dow Jones industrial average fell 340.24 points, or 1.89 percent, at 17,670.83, the S&P 500 lost 42.11 points, or 1.99 percent, at 2,071.21 and the Nasdaq Composite dropped 116.74 points, or 2.38 percent, at 4,793.31.

 

MSCI's all-country world stock index fell 3.5 percent.

 

Having campaigned to keep the country in the EU, British Prime Minister David Cameron announced he would step down.

 

Results showed a 51.9/48.1 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.

 

More angst came as Scotland's first minister said the option of another vote for her country to split from the UK - rejected by Scottish voters two years ago - was now firmly on the table.

 

The British pound dived by 18 U.S. cents at one point, easily the biggest fall in living memory, to its lowest since 1985. The euro, in turn, slid 3 percent to $1.1050 as investors feared for its very future.

 

Sterling was last down 7.8 percent at $1.3719, 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 Benson.

 

"The market is pricing interest rate cuts from the big central banks and we assume there will be a global liquidity add from them," he added.

 

That message was being broadcast loud and clear. The Bank of England, European Central Bank and the People's Bank of China all said they were ready to provide liquidity if needed to ensure global market stability.

 

Shockwaves

 

The shockwaves affected all asset classes and regions.

 

The safe-haven yen jumped 3.6 percent to 102.29 per dollar , having been as low as 106.81. The dollar's peak decline of 4 percent was the largest since 1998.

 

That prompted warnings from Japanese officials that excessive forex moves were undesirable. Traders said they were wary of being caught with exposed positions if the global central banks chose to step in to calm the volatility.

 

Emerging market currencies across Asia and eastern Europe and South Africa's rand all buckled on fears that investors could pull out. Poland saw its zloty slump 4 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, Tokyo's Nikkei saw its worst fall since 2011, down 7.9 percent.

 

Financial markets have been gripped for months by worries about what a British exit from the EU would mean for Europe's stability.

 

"Obviously, there will be a large spill-over effects across all global economies ... Not only will the UK go into recession, Europe will follow suit," predicted Matt Sherwood, head of investment strategy at fund manager Perpetual in Sydney.

 

 

 

Investors stampeded into low-risk sovereign bonds, with U.S. 10-year notes gained two full points in price to yield 1.521 percent. Earlier, the yield dipped to 1.406 percent, only slightly higher than a record low 1.38 percent reached in July 2012.

 

"Right now it's 'every man for himself' safety buying," said Tom Tucci, head of Treasuries trading at CIBC in New York.

 

The rally even extended to UK bonds, despite a warning from ratings agency Standard & Poor's that it was likely to downgrade Britain's triple-A credit rating if it left the EU. Yields on benchmark 10-year gilts fell 27 basis points to 1.0092 pct.

 

Across the Atlantic, investors were pricing in 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.

 

"A July (hike) is definitely off the table," said Mike Baele, managing director with the private client reserve group at U.S. Bank in Portland, Oregon.

 

Fed funds futures <0#FF:> were even toying with the chance that the next move could be a cut in U.S. rates.

 

Oil prices slumped by more than 4 percent amid fears of a broader economic slowdown that could reduce demand. U.S. crude shed $2.12 to $47.99 a barrel while Brent fell as much as 6 percent to $47.83 before clawing back to $48.60.

 

Industrial metal copper sank 3 percent but gold galloped more than 6 percent higher thanks to its perceived safe haven status.