Europe midday: Brexit sends shares, sterling tumbling
The UK’s vote to leave the European Union sparked a bloodbath in European equity markets on Friday, sending the pound tumbling against the dollar and weighing on oil prices, while gilts and gold surged as investors fled to safety.
Results of the referendum showed a Leave win at 52%, with Remain at 48%. London, Northern Ireland and Scotland backed Remain, while the rest of England and Wales opted to leave.
Markets in Asia crashed on Friday; the Nikkei lost over 8% and the Hang Seng fell more than 4%, while the yen surged past 100 per US dollar for the first time since November 2013 on its safe-haven appeal.
At midday, the main indices were off their lows but still firmly in the red. The benchmark Stoxx Europe 600 index was down 7.5%, Germany’s DAX was off 7.4% and France’s CAC 40 was 8.8% lower. The FTSE 100 was down 4.8%, as it emerged that David Cameron had resigned as prime minister.
Meanwhile, the pound was trading around $1.3685, having crashed to its lowest level against the dollar since 1985 earlier.
At the same time, UK gilt yields set new records, with the yield on the benchmark 10-year government bonds down 35 basis points to 1.003%.
Cameron said the UK needed “fresh leadership” to “steer the country” out of the EU.
"There is no need to have a precise timetable today, but in my view we should have a new PM in place in time for the Conservative Party conference in October,” he said. "A negotiation with the EU will need to begin under a new PM, and I think it's right that this new PM takes the decision about when to invoke Article 50.”
Rebecca O’Keeffe, head of investment at Interactive Investor, said: “Global markets are in turmoil in the aftermath of the surprise UK Leave vote. Having spent all of the last week gearing up and going up in anticipation of a Remain vote, the carnage is even more pronounced in the currency, equity and bond markets as analysts and investors struggle to work out what fair value is.
“This leap into the unknown leaves a huge number of economic and political questions unanswered for both the UK and the wider European Union and this is adding to the uncertainty for investors. Will the immediate market moves be overdone, or is this the start of a protracted fall for both sterling and equity markets? Will the result see further pressure from disillusioned European Union member groups, causing more friction for Europe? Will this result lead to the break-up of Britain, as the regional implications of the vote are fully considered?”
Unsurprisingly, banks took an absolute battering, with the Stoxx 600 sub-index for the sector down nearly 14%.
In London, shares in Lloyds, Royal Bank of Scotland and Barclays were off lows but still around 20% weaker. It was a similar story for housebuilders, with Taylor Wimpey, Barratt Developments, Berkeley Group and Travis Perkins all down by approximately 20%.
There were a few risers in London, however. Defence and aerospace firm Rolls-Royce – which generates two thirds of its revenues and three quarters of its order book outside the EU – racked up some healthy gains, followed closely by pharmaceutical groups GlaxoSmithKline and AstraZeneca.
Gold-related shares also enjoyed a strong performance, with the yellow metal rallying 5% as investors looked for safe places to park their cash.
Oil prices skidded, with West Texas Intermediate down 4.8% to $47.71 a barrel and Brent crude 5% weaker at $48.39,.
The Bank of England said on Friday that it was “monitoring developments closely” and had undertaken "extensive contingency planning and is working closely with HM Treasury, other domestic authorities and overseas central banks”.
In addition, the European Central Bank pledged to provide additional liquidity, if needed, in euro and foreign currencies.