By Mike Bird and Georgi Kantchev
Britian's vote to leave the European Union battered the British
pound by more than 11% Thursday night and into Friday morning,
pushed down stocks in Asia and pointed to a day of steep falls
across the world's financial markets. It was a brutal drubbing for
investors who had stacked up bets that the U.K. would choose to
stay.
The pound traded as low as $1.3230 in London's early hours, as a
pink-fringed dawn rose over the city and the British Broadcasting
Corp. called the referendum for Leave. That was the lowest level
against the dollar since 1985, and an epic move for a
developed-market currency. The pound edged back up and was at $1.36
by 7 a.m. Just hours before, it had peaked above $1.50. Futures
markets in the U.S. pointed to the S&P 500's opening down 5%;
in Britain they indicated a fall in the benchmark stock index of
nearly 9%.
Nothing was spared from the tumult. Brent, the international oil
price gauge, shed 4.97% to $48.38 a barrel in early trade on
Friday. London copper prices dropped nearly 3% to $4,643.50 a
metric ton.
The vertiginous moves portend unruly trading ahead. Stocks had
been on a steady uplift this week following a series of polls that
suggested a victory for Remain. That enthusiasm continued through
the day Thursday. By the time polls closed at 10 p.m. British time,
gamblers had staked so many bets for Remain that betting exchange
Betfair calculated a 94% chance that the side would carry the
day.
Then the counting started. A hairbreadth win for Remain in
Newcastle, in the northeast of England, started to deflate the
pound, as did reports of Leave victories in smaller districts.
Sunderland, a Labour-leaning port city where anger at the EU runs
high, reported a 61.3% Leave tally. The pound slammed down, falling
more than 3% in minutes.
In Tokyo, Yusuke Sakai, a senior trader at T&D Asset
Management, got a shock geography lesson. "Wow!" he said. "What a
big move. I don't even know where this is? It must be a rural town
or something. The currency is moving more than Yen2."
Angus Nicholson, a market analyst at equities trader IG Markets
in Melbourne, Australia, said a sense of high anxiety swept global
markets as the pound plunged in the space of seconds, and it was
evident in messaging coming across screens from the firm's U.K.
home office.
Mr. Nicholson said for a few moments "it was squeaky bum time"
in his dealing room, as an earlier sense of reassuredness around a
win for the Remain camp was swept aside. "A 4% move within a second
is pretty wild. In currency-market terms, it's a black-swan
event."
Bob Browne, chief investment officer at Northern Trust, was
sitting in his car Thursday evening in Highland Park, Ill., waiting
for his son to come out of a doctor's appointment. He was checking
his cellphone for the latest voting results, with early signs that
an upset was in the cards. "Some of the early polls have come in,
and the market is revisiting its rock-solid assumption just a few
hours ago that the U.K. would stay in," he said.
By 3 a.m. in London, five hours after the polls had closed,
Betfair put the odds of Britain's remaining at 56%. A victory for
Leave in Swansea, in South Wales, helped drive the pound still
lower--down below $1.41, off more than 5% from just before the
polls closed.
The day had started better for traders who had staked money on
Remain. An online survey conducted on the day of the referendum by
pollsters YouGov showed 52% support for the Remain camp, against
48% for Leave. The survey was released minutes after the polls
shut.
The YouGov survey matched a number of other signals that Remain
had the upper hand in the final stretch of a hard-fought, seesawing
contest. Ben Page, chief executive of pollster Ipsos Mori, tweeted
Thursday night that his company continued polling Wednesday and
Thursday, suggesting 54% support for the pro-EU camp, against 46%
for the campaign to leave the EU.
Shortly after the polls closed, UK Independence Party leader
Nigel Farage, who has spearheaded the Leave camp, said that he
expects the Remain camp to win, according to broadcaster Sky News.
Mr. Farage later told the Press Association newswire that his
estimate is based on "friends in the financial markets who have
done some big polling."
But the early counting sharply shifted that sentiment, and with
it many markets. Stock futures fell sharply in the early hours.
Investors were also keeping a careful watch on gold, which has
served as a hedge against Brexit, and government bonds--especially
those of the U.K. Gold futures shot up as the result became plain
and were up 5% early Friday, at $1,326.40 an ounce. The precious
metal rallied to as high as $1,317.51 an ounce last week as risk
assets sold off around the world.
But the center of the market's attention is the pound. The
currency had closely tracked the betting odds of a Remain victory,
which rose from 58% on Thursday to 88% just before polls closed at
10 p.m. U.K. time.
One-month implied volatility in sterling--a measure of the price
of options contracts on the pound--reached its highest levels since
the 2008-09 financial crisis last week, but has declined slightly
since.
The Stoxx Europe 600 climbed 1.5%, London's FTSE 100 gained 1.2%
and Germany's DAX rose 1.8%. It was the fifth consecutive session
of gains for all three indexes.
In recent days worries that a British exit from the EU will
stoke global economic uncertainty has roiled financial markets,
spurring wild swings in the pound, euro and other currencies. That
has prompted banks to caution clients against taking large
positions in a market where currencies could gyrate and liquidity
may dry up. Banks are widening spreads--the gap between pricing for
bids and offers--to account for the greater risks from expected
turbulence.
Kosaku Narioka,
Chao Deng
, James Glynn contributed to this article.
Write to Mike Bird at Mike.Bird@wsj.com and Georgi Kantchev at
georgi.kantchev@wsj.com.
(END) Dow Jones Newswires
June 24, 2016 02:47 ET (06:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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