Sterling, stocks slide on Brexit alarm
BRITAIN battled to stop worldwide Brexit alarm yesterday but failed to prevent the pound crumbling to a threedecade low against the dollar as European shares took a fresh plunge.
US stocks tumbled early yesterday, joining European markets in a two-day rout amid worries about the impact of Britain’s vote to leave the European Union.
About 40 minutes into trade, the Dow Jones Industrial Average was at 17,148.90, down 1.5 per cent.
The broad-based S&P 500 dropped 1.6 per cent to 2,005.33, while the tech-rich Nasdaq Composite Index fell 1.8 per cent to 4,622.60.
The declines extended deep falls on Friday, when all three major US stock indices dropped into negative territory for 2016 following the surprise British outcome of Thursday’s EU referendum.
While the losses were broadbased, they were most acute in the same industries that declined the most on Friday: banking, industrials and travel.
Losses were deeper in Europe, where the economic hit is expected to be greatest due to the uncertainty over the British negotiation of terms to exit the EU.
Markets in Paris, London and Frankfurt were all down more than two percent. Oil prices fell, and the British pound suffered another bruising decline.
Asian markets had steadied a little after Britain’s June 23 vote to abandon the European Union wiped $2.1 trillion off international equity values on Friday.
But investors started a new wave of selling in European trade and Wall Street followed suit as they grappled with the financial consequences of the Brexit referendum.
“Today I want to reassure the British people, and the global community, that Britain is ready to confront what the future holds for us from a position of strength,” Britain’s finance minister, George Osborne, declared before European financial markets opened.
Britain’s economy is “as strong as could be”, the minister said.
Hours later, the pound had skidded to $1.3194 in London trade, its lowest level against the dollar since September 1985.
London’s FTSE 100 index, which boasts many international companies, fell around 1.9 per cent in mid-afternoon trading, masking steeper falls in key sectors likely to be affected by Brexit.
“George Osborne’s comments have clearly prevented a much more dramatic decline yesterday morning, but markets will remain incredibly volatile throughout the long-winded process of exiting the EU,” said Interactive Investor equity strategist Lee Wild in London.
Pound ‘vulnerable’
Royal Bank of Scotland shares slumped 15.8 per cent. Lloyds Banking Group fell 9.2 per cent.
British construction group Taylor Wimpey tumbled 18 per cent, while shares in Eurotunnel fell more than 12 per cent.
One-fifth of British business leaders are considering moving operations abroad after the referendum, according to a survey from leading business lobby group, the Institute of Directors.
“Any sense of calm is very fragile and the situation could change rapidly,” said Joe Rundle, head of trading at ETX Capital.
In eurozone equity trading, Frankfurt’s DAX 30 index slid 1.9 per cent as the country’s biggest lender Deutsche Bank lost 5.5 per cent. The CAC 40 in Paris extended its earlier weakness to stand more than 3 per cent lower in mid-afternoon.
Traders said the FTSE was being supported by a weaker pound, which could well slip further. Stephen Innes, senior trader at OANDA Asia Pacific, warned sterling “is extremely vulnerable”.
He also said there was “a huge concern that London’s status as the global financial capital will crumble” if it loses its “passporting” rights, which permit banks to locate themselves in Britain while offering products and services in the wider EU.
There are fears the British vote will usher in another global market rout just months after a China-fuelled sell-off at the start of the year.
But Capital Economics economist Julian Jessop said it would be wrong to think another global financial crisis could be around the corner.
“Even now, the FTSE 100 is still above its mid-June lows,” he said in a note to investors.
“On a trade-weighted basis, the pound is only back to where it was during most of the period from 2009 to 2015,” he added.
Morgan Stanley economist Chetan Ahya tipped a new round of monetary easing in Asia to limit the fallout.
“We think near-term focus of policymakers will be to mitigate adverse impacts on financial conditions.
“Specifically, we expect policymakers to introduce liquidity injections measures,” he said.