Monday 25 September 2017

Down and out - Brexit bashes world markets

A trader from BGC, a global brokerage company in London's Canary Wharf financial centre reacts during trading after Britain voted to leave the European Union. REUTERS/Russell Boyce
A trader from BGC, a global brokerage company in London's Canary Wharf financial centre reacts during trading after Britain voted to leave the European Union. REUTERS/Russell Boyce
John Mulligan

John Mulligan

Global stock markets plunged yesterday after the UK voted to quit the European Union.

More than $2 trillion (€1.8 trillion) was wiped from the value of shares around the world.

Worry on the faces of traders in London’s financial district in a ‘truly unprecedented’ day of
destruction on the world’s markets. REUTERS/Russell Boyce
Worry on the faces of traders in London’s financial district in a ‘truly unprecedented’ day of destruction on the world’s markets. REUTERS/Russell Boyce

And HSBC has forecast that the euro will be worth 92p by the year's end, compared to 81p yesterday.

The Irish Stock Exchange was engulfed in the maelstrom, crashing over 1,000 points, or 17pc at one stage.

But Irish 10-year bonds shrugged off the wider panic, with prices unchanged on the day, boosted by a vote of confidence from ratings agency S&P.

The yield, or return, on 10-year Irish Government bonds stood at 0.799pc, with State borrowing costs remaining close to a historic low.

Many major stocks on the Irish Stock Exchange were hit with huge declines during the day, which will go down in history as one of the bloodiest ever recorded.

The ISEQ Overall Index later staged a partial recovery, to end the day 7.7pc lower at 5,878 points - what would still be considered a brutal battering. But the fall was less than the 13pc closing drop recorded by the index on one day in September 2008, two weeks after Lehman Brothers collapsed.

Stock markets across Europe and the world reacted with unbridled panic to the Brexit vote.

The FTSE-100 - the benchmark of the UK's biggest 100 companies - plunged almost 9pc soon after it opened, cutting about £120bn (€147bn) from the value of its component stocks. But it rallied to end the session down 3.1pc. Investors are hoping that as sterling weakens, it will make the UK's exports more competitive.

But bourses on mainland Europe fared worse as the Brexit contagion instantly spread.

Benchmark indices in France, Germany and elsewhere all plummeted.

France's CAC-40 closed down just over 8pc. Germany's DAX was 6.8pc lower and Spain's benchmark IBEX-35 was down 12.3pc.

The collapse in Irish shares saw:

  • Bank of Ireland down 20.8pc
  • Ryanair down 10.8pc
  • Smurfit Kappa down 10.8pc
  • Kingspan down 26.8pc
  • Permanent Tsb down 19.8pc

The Irish Stock Exchange - one of the oldest in the world - sought to reassure investors and stakeholders.

"The result of the UK referendum on membership of the European Union has had a significant impact on global markets today including the markets of the Irish Stock Exchange (ISE)," said a spokeswoman.

"The long term impact of the decision will be largely determined by the terms of the UK exit. There are many issues for Irish people and Irish businesses in the wake of this decision. The ISE will do all that it can to ensure that any potential risks to the position of the Irish capital market are managed," she said.

Asian markets were the first to react to the Brexit vote and became gripped by what would be a global tempest. Japan's Nikkei 225 lost 8pc. That was a 16-year record decline.

As New York woke, markets there tumbled. The Dow Jones slumped 2.8pc as it opened. The Nasdaq shed 3.4pc.

"This is a historic moment and we're looking into uncharted territory," said Ralf Zimmermann, a strategist at Bankhaus Lampe in Dusseldorf. "We expect a lot of volatility in the coming days."

And while shares generally recovered in the UK, stocks such as those in the banking sector remained badly damaged. Shares in Royal Bank of Scotland and Barclays fell by around 18pc 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.

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.

"There is a grave danger of further weakness in the weeks ahead," said Societe Generale strategist Kit Juckes. "Indeed, the view of policymakers will be that a weaker pound is a vital economic shock absorber."

The moves dwarfed falls on 'Black Wednesday' in 1992, when the pound was driven out of the Exchange Rate Mechanism. London bankers who worked through referendum night said it was the most volatile day's trading they had ever seen.

"The word 'unprecedented' is often used too much, and people often reach for the hyperbole. But this is truly unprecedented," said Steven Major, head of global rates strategy at HSBC in London. (Additional reporting Reuters and Bloomberg)

Irish Independent

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