Monday 20 November 2017

Brexit bloodbath on stock markets, FTSE 100 falls 8pc in eight minutes

Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, June 23, 2016. REUTERS/Staff/Remote
Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, June 23, 2016. REUTERS/Staff/Remote

Ailish O'Hora and Sean Duffy

THERE was a bloodbath in stock markets this morning following the UK's historic decision to leave the EU.

The FTSE 100 fell 8pc in eight minutes when it opened - wiping the equivalent of £140bn off the value of shares and hitting people's pensions as a result.

The ISEQ index of Irish shares plummeted 13pc.

Economists are also predicting downgrades of growth figures for the Irish economy on the back of Brexit.

Markets later came back a bit with the FTSE 100 at just over 4pc an hour after trading started.

In early trade, 9.5pc was wiped off Germany's DAX while in France the CAC was down 6.99pc. The EUROSTOXX 600 was also down, trading 8.11 pc lower at 318.10.

Bank shares, insurance firms and building firms took the biggest whack.

The 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-harbors of top-rated government debt, Japanese yen and gold.


Other indices also fell as  EMINI S&P 500 futures ESc1 dropped 5 percent and Japan's Nikkei .N225 7.6 percent. European stock markets were set to open more than 10 percent lower STXEc1.

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 EUR= 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 he 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 GBP=, 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 in the next few hours," he added.

The shockwaves affected all asset classes and regions.

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 volatility.

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 Britain come from, saw its zloty PLN= 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. [EUR/GVD]

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slid almost 5 percent, while Shanghai stocks .SSEC 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 TYc1 jumping over 2 points in an extremely rare move for Asian hours.

(additional reporting Reuters)

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