NEW YORK, June 24, (Agencies): Global stock markets lost about $2 trillion in value on Friday after Britain voted to leave the European Union, while sterling suffered a record one-day plunge to a 31-year low and money poured into safe-haven gold and government bonds.
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 move blindsided investors, who had expected Britain to vote to stay in the EU, and sparked sharp repricing across asset classes. Mainland European equity markets took the brunt of selling as investors feared the vote could destabilize the 28-member bloc by prompting more referendums.
The traditional safe-harbor assets of top-rated government debt, the Japanese yen and gold all jumped. Spot gold rose over 4 percent and the yield on the benchmark 10-year US Treasury note fell to a low of 1.406 percent, last seen in 2012, but climbed higher in afternoon trading.
Stocks tumbled in Europe. Frankfurt and Paris each fell 7 percent to 8 percent. Italian and Spanish markets posted their sharpest one-day drops ever, falling more than 12 percent led by a dive in European bank stocks. Italy’s Unicredit fell 24 percent while Spain’s Banco Santander fell 20 percent.
London’s FTSE, however, dropped 3.2 percent, with some investors speculating that the plunge in sterling could benefit Britain’s economy.
Still, Britain’s big banks took a $100 billion battering, with Lloyds, Barclays and RBS plunging as much as 30 percent, although they cut those losses in half later in the day.
Stocks on Wall Street traded down around 3 percent, with the Dow Jones industrial average dropping as much as 544 points.
The Dow Jones industrial average fell 520.19 points, or 2.89 percent, to 17,490.88. The S&P 500 slid 65.75 points, or 3.11 percent, to 2,047.57 and the Nasdaq Composite lost 182.46 points, or 3.72 percent, to 4,727.58.
MSCI’s all-country world stock index fell 4.4 percent.
Voting 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.
The British pound dived by 18 US cents at one point, easily the biggest fall in living memory, to its lowest since 1985. The euro slid 3 percent to $1.1050 as investors feared for its very future.
Sterling was last down 7.4 percent at $1.3775, 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.
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.
The shockwaves affected all asset classes and regions.
The safe-haven yen jumped 3.9 percent to 102.21 per dollar , having been as low as 106.81. The dollar’s peak decline of 4 percent was the largest since 1998.
US stocks fell sharply on Friday, with the Dow Jones industrial average dropping as much as 538 points, as Britain’s vote to quit the European Union sent a shock wave through global financial markets.
The S&P 500 index and Dow were on track for their biggest one-day percentage drop since September, while the Nasdaq composite index was headed for its worst day since August. All three indexes were set for their second weekly decline in a row. Global financial markets plunged and sterling sank to its lowest since 1985 after Britons voted by about 52-48 percent to break away from the world’s biggest trading bloc.
At 13:47 am ET (1747 GMT) the Dow was down 509.31 points, or 2.83 percent, at 17,501.76, the S&P was down 63.32 points, or 3 percent, at 2,050 and the Nasdaq Composite was down 180.39 points, or 3.67 percent, at 4,729.65.
If the Nasdaq closes down by more than 179.79 points, it would be its biggest one-day points drop since September 2008, at the start of the financial crisis.
Investors worried about the outlook for the world economy sought refuge in the dollar and other traditional safe-harbor assets such as gold and US Treasury bonds, while dumping riskier shares. The yield on the US 10-year T-bond hit its lowest since 2012.
Banks stocks, which had risen strongly this week in anticipation that Britain would stay in the EU, were among the biggest losers.
The financial index fell 4.74 percent, leading sector decliners, and was set for its worst day in 10 months.
Citigroup was down 8.4 percent and Morgan Stanley 9.6 percent, while Bank of America, JPMorgan and Goldman Sachs dropped by between 6 and 7 percent. US banks have big London operations.
Nine of the 10 major S&P 500 sectors were lower. Only the utilities sector managed to eke out a gain. Utilities are traditionally seen as a safe investment.
Shares of the biggest US tobacco companies also rose, as investors sought stocks offering high yields. Altria Group , the largest US cigarette maker, was up 2.3 percent at $67.85 after hitting a record high of $67.97. The CBOE VIX volatility index — known as Wall Street’s fear gauge — was up 35.3 percent at 23.34 in afternoon trading. The index had earlier surged as much as 52.11 percent to 26.24, its highest since February.
Sterling plunged to its lowest in three decades and the value of London’s big banks sank by the most since the 2008 financial crisis as Britain’s shock vote to leave the European Union triggered turmoil on global financial markets on Friday.
The damage to London’s stock market eased as the day wore on, helped by expectations the weaker pound would help many UK companies and by the Bank of England’s promise of 250 billion pounds of extra support.
But shares in Royal Bank of Scotland and Barclays fell by around 18 percent and, even with an afternoon recovery, sterling’s fall was the biggest since the system of free-floating exchange rates was introduced in the early 1970s.
Major bank analysts predicted the currency would fall further in the months ahead, as financial investors price in the long- and short-term uncertainties unleashed by the Brexit vote and the scale of the damage to Britain’s economic prospects.
The moves dwarfed falls on “Black Wednesday” in 1992 when the pound was driven out of the pre-euro Exchange Rate Mechanism and London bankers who had worked through the night said it was the most volatile day’s trading they had ever seen.
HSBC cut its forecast for the pound to $1.20 and 92 pence per euro by the end of this year, and several other banks said they expected the value of the British currency to fall further.
Money markets moved fully to price in a cut in official interest rates by December, anticipating that the Bank of England will need to take steps to prop up an economy that has already slowed in the run in to Thursday’s vote.
Traders said there had been strong buyers of sterling in Asia, however — possibly including foreign central bank reserve managers stocking up on the pound while it was at its cheapest in decades.
The cost of insuring against swings in the sterling/dollar exchange rate jumped to 53.375 percent, the highest since at least 1998, before easing back to less than half that. Sterling stood at $1.3616 by late afternoon in London, up from as low as $1.3228, its weakest level since mid-1985.
The pound collapsed to a 31-year low as currency, equity and oil markets went into freefall Friday with early referendum results indicating Britain would leave the European Union.
Sterling collapsed more than nine percent to $1.3466, its weakest level since 1985, while the greenback itself slumped below 100 yen for the first time in two-and-half years as traders fled to safety.
In the weeks leading up to Thursday’s historic vote, there had been widespread warnings that a vote to leave the bloc would cause another rout across global markets that would wipe trillions off valuations, just months after a painful China-fuelled sell-off.
And as results came in, the doomsday scenario seemed to be unfolding.
The pound had earlier topped $1.50 following predictions the “remain” group would win but as the “leave” camp continued to post victories around the country, traders put in sell orders. The dollar slumped briefly to 99.02 yen, the first time it has gone below 100 yen since November 2013.
The Japanese unit is considered a safe bet in times of uncertainty and turmoil.
Oil prices slumped by more than 6 percent on Friday after Britain voted to leave the European Union, raising fears of a broader economic slowdown that could reduce demand.
Financial markets have been worried for months about what Brexit, or a British exit from the European Union, would mean for Europe’s future, but were clearly not fully factoring in the risk of a leave vote.
British Prime Minister David Cameron, who campaigned to remain in the EU, said he would stand down by October.
Brent crude was down 4.85 percent or $2.47 at $48.44 a barrel at 1140 GMT. US crude was down 4.6 percent or $2.31 at $47.80 a barrel.
Earlier in the day, both contracts were down by more than $3, or over 6 percent, the biggest intra-day declines for both since April 18, when a meeting of top global oil producers failed to agree on an output freeze.
Gold dealers in London reported surging demand for coins and bars on Friday, with some saying stocks were tight, after a shock vote for Britain to leave the European Union sent financial markets into meltdown and drove the pound lower.
Gold delivered double-digit percentage gains in sterling terms on Friday, topping 1,000 pounds an ounce for the first time in over three years, and soared as much as 8 percent in dollars.
Volatility in the wider markets has left some retail investors scrambling to stock up on gold, dealers say.
Mark O’Byrne, research director of Dublin-based gold broker Goldcore, said it had seen record online sales for the time of day in early trade.
Sales of Britannia and sovereign coins have been extremely high, and inventories are being replenished, he said.
The Royal Mint said visitor numbers to its bullion trading platform had surged by 550 percent from Thursday, while new account openings had trebled.
Ross Norman, chief executive of Sharps Pixley, said his company had also seen a surge of online business on Friday, with gold Britannia coins and kilo bars selling out.
“We’ve been forced to get emergency stocks from our German and Swiss offices,” he said. “Gold is demonstrating well what it does best, which is wealth preservation.”
Users of online gold retailer BullionVault users traded 23.5 million pounds ($32.20 million) worth of vaulted gold and silver between midnight and 1000 GMT, it said, more than two weeks’ worth of average trading in 2015.
Gold sales in London picked up earlier this month after polls first began to suggest that the Leave campaign had edged into the lead.
Physical gold demand among consumers is also expected to rise in the remainder of the EU, on fears that other countries could also seek referendums on exiting the bloc.
Gold priced in euros hit a three-year high on Friday as the single currency dropped sharply versus the dollar.
“We’ve already seen quite a surge in online demand,” German bullion retailer Degussa’s chief executive Wolfgang Wrzesniok-Rossbach said. “We’ve had double the number of purchases compared to a normal day.”
Dealers are also reporting selling as some investors cashed in gains after gold rallied to three-year highs in euro and sterling terms overnight, although they say that activity has dried up as prices retreated from those peaks.
“The buying side is much, much bigger than the selling side,” Daniel Marburger, director of CoinInvest.com, said. “I would estimate that we have one seller to every fifty buyers.” The company had had a big uplift in sales on Friday, he said.