Global stock markets reportedly lost about $2 trillion in value on account of the UK voting to exit 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 sparked could keep the U.S. 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 nearly 4%, and the yield on the benchmark 10-year U.S. Treasury note fell to a low of 1.406%, last seen in 2012, though it climbed higher in afternoon trading.
Stocks tumbled in Europe. Frankfurt .GDAXI and Paris. FCHI each fell 7% – 8%. Italian .FTMIB and Spanish. IBEX markets posted their sharpest one-day drops ever, falling more than 12%, led by a dive in European bank stocks. SX7P. Italy’s Unicredit (CRDI.MI) fell 24% while Spain’s Banco Santander (SAN.MC) fell 20%.
London’s FTSE dropped 3.2%, with some investors speculating that the plunge in sterling could benefit UK’s economy. The index closed up 2% for the week for its best weekly gain in over two months.
“I think markets were really caught off guard today, that’s why you see a huge risk-off trade,” said Jeff Kravetz, a strategist at the Private Client Reserve at U.S. Bank. “at the end, when markets start to settle down, I think they are going to realize that this is not the end of the world.”
Still, Britain’s big banks took a $100 billion battering, with Lloyds (LLOY.L), Barclays (BARC.L) & RBS (RBS.L) plunging as much as 30%, although they cut those losses nearly in half later in the day.
Stocks on Wall Street traded down more than 3%, with the Dow Jones industrial average dropping as much as 655 points, its worst daily drop in 10 months.
The Dow Jones industrial average. DJI fell 611.21 points, or 3.39%, to 17,399.86, the S&P 500. SPX lost 76.02 points, or 3.6%, to 2,037.3 and the Nasdaq Composite. IXIC dropped 202.06 points, or 4.12%, to 4,707.98.
MSCI’s all-country world stock index. MIWD00000PUS fell 4.8%.
Voting results showed a 51.9/48.1% 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 divided by 18 U.S. cents at one point, to its lowest since 1985. The euro slid 3% to $1.1050 EUR as investors feared for its very future.
Sterling was last down 8.3% at $1.3642 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.
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.
Globally, key US indices fell around 3.5% during the day’s trade while the UK’s FTSE 100 and FTSE 250 indices dropped 3.2% and 7.2% respectively. Japan’s Nikkei index was the worst hit, registering a fall of 7.9%.