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 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 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 nearly 4 percent and the yield on the benchmark 10-year U.S. Treasury note fell to a low of 1.406 percent, last seen in 2012, though it climbed higher in afternoon trading.
Stocks tumbled in Europe. Frankfurt .GDAXI and Paris .FCHI each fell 7 percent to 8 percent. Italian .FTMIB and Spanish .IBEX markets posted their sharpest one-day drops ever, falling more than 12 percent, led by a dive in European bank stocks .SX7P. Italy’s Unicredit (CRDI.MI) fell 24 percent while Spain’s Banco Santander (SAN.MC) fell 20 percent.
London’s FTSE .FTSE dropped 3.2 percent, with some investors speculating that the plunge in sterling could benefit Britain’s economy. The index closed up 2 percent 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 are seeing a huge risk-off trade,” said Jeff Kravetz, a strategist at the Private Client Reserve at U.S. Bank. “In 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) and RBS (RBS.L) plunging as much as 30 percent, although they cut those losses nearly in half later in the day.
Stocks on Wall Street traded down more than 3 percent, 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 percent, to 17,399.86, the S&P 500 .SPX lost 76.02 points, or 3.6 percent, to 2,037.3 and the Nasdaq Composite .IXIC dropped 202.06 points, or 4.12 percent, to 4,707.98.
MSCI’s all-country world stock index .MIWD00000PUS fell 4.8 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 U.S. cents at one point, to its lowest since 1985. The euro slid 3 percent to $1.1050 EUR= as investors feared for its very future.
Sterling was last down 8.3 percent 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.
The shockwaves affected all asset classes and regions.
The safe-haven yen jumped 3.8 percent to 102.36 per dollar JPY=, having been as low as 106.81. The dollar’s peak decline of 4 percent was the largest since 1998.
Emerging market currencies across Asia and eastern Europe and South Africa’s rand all buckled on fears that investors could pull out. Poland’s zloty PLN= slumped 4.7 percent.
Europe’s safety play, the 10-year German government bond, surged, with yields tumbling back into negative territory and a new record low.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slid almost 3.4 percent. Tokyo’s Nikkei .N225 had its worst fall since 2011, down 7.9 percent.
Investors stampeded into low-risk sovereign bonds, with U.S. 10-year notes US10YT=RR up around 1.5 points in price to yield 1.5718 percent. Earlier, the yield dipped to 1.406 percent.
The rally even extended to UK bonds, despite a warning from ratings agency Standard & Poor’s that it was likely to downgrade Britain’s triple-A credit rating if it left the EU. Yields on benchmark 10-year gilts fell 27 basis points to 1.096 pct GB10YT=TWEB.
Across the Atlantic, investors were pricing in less chance of another hike in U.S. interest rates given the Federal Reserve had cited a British exit from the EU as one reason to be cautious on tightening.
The cost for Wall Street to fund dollar-based trades rose on Friday to the highest in nearly three months. [L1N19G1PQ]
Oil prices slumped around 5 percent amid fears of a broader economic slowdown that could reduce demand. U.S. crude CLc1 shed $2.51 to $47.60 a barrel while Brent LCOc1 fell 4.9 percent to $48.42.
Industrial metal copper CMCU3 sank 1.7 percent but gold XAU= leaped nearly 5 percent higher thanks to its perceived safe-haven status.
(Additional reporting by Sadiq Iqbal Ahmed, Caroline Valetkevitch, Olivia Oran and David Henery in New York Editing by Nick Zieminski and Dan Grebler)