Sydney: Carnage came to world markets on Friday as early voting returns suggested Britain was on the brink of leaving the European Union, threatening the existent of the entire bloc and its single currency.
At one stage the British pound had collapsed no less than 10 U.S. cents, its biggest fall in living memory, while the euro slid 1 per cent as investors feared for its future.
Sterling was last at $1.4450, having carved out a massive range of $1.4000 to $1.5022. At it worse, the fall was even larger than during the global financial crisis and the currency was moving one or two cents in the blink of an eye.
“Sterling is getting smackadoodled,” said Tim Kelleher, Head of FX Institutional Sales New Zealand for ASB Bank in Auckland. “While we thought it was all going to be “Remain”, it’s quite clearly not going to be as clear cut as that.”
Early official results showed the margins were nail-bitingly tight but pointing to a “Leave”. Traders were particularly spooked by returns from Sunderland showing a large majority for the “Leave” camp and just a narrow win for “Remain” in Newcastle.
As other large cities began to report, the “Remain” camp made up lost ground to be neck and neck. With 100 of 382 counting areas declared, the Leave camp was put at 49.5 per cent against 50.5 per cent for “Remain”, according to Reuters calculations.
The tremors shook all asset classes and regions.
The safe-haven yen recouped early losses to stand at 104.73 per dollar, dragging Japan’s Nikkei down 0.6 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.6 per cent.
FTSE futures were indicated down 3 percent, while EMINI futures for the S&P 500 lost 1.1 per cent.
Financial markets have been racked for months by worries about what Brexit, or a British exit from the European Union, would mean for Europe’s stability.
Early opinion polls had favoured the “Remain” camp and perhaps led to a false sense of complacency in markets. An Ipsos MORI poll put the lead at 8 points while a YouGov poll found 52 per cent of respondents said they voted to remain in the EU while 48 percent voted to leave.
Safe-haven bonds immediately came back into favour, with U.S. 10-year Treasury futures jumping 28 ticks. Yields on the cash note fell 8 basis points to 1.66 per cent.
Investors also priced in even 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.
“It adds weight to the camp that the Fed would be on hold. A July (hike) is definitely off the table,” Mike Baele, managing director with the private client reserve group at U.S. Bank in Portland, Oregon.
Commodities likewise swung lower as a Brexit would be seen as a major threat to global growth. U.S. crude shed $0.85 to $49.26 a barrel in erratic trade while Brent fell $0.81 to $50.10.
Copper slipped but gold rose about 1.5 per cent thanks to its perceived safe haven status.