Europe midday: Stocks, sterling extend losses on Brexit worries

European stocks extended their losses on Monday, while the pound fell to a fresh 31-year low and gilts rallied, as investors tried to gauge the impact of the UK’s decision to leave the European Union.

At midday, the benchmark Stoxx Europe 600 index was down 2.9%, Germany’s DAX was 1.9% lower and France’s CAC 40 was off 1.8%. The FTSE 100 was 1.6% lower, with market participants pointing out that it is somewhat supported by a weaker pound, but the more domestically-focused FTSE 250 fared much worse, down 5.2%.

In Spain, the IBEX 35 reversed earlier gains to trade down 1.5% after acting Prime Minister Mariano Rajoy won the most votes in the country’s repeat national elections on Sunday, although the People’s Party fell short of a majority.

In Italy, the FTSE MIB was 2% lower amid reports the country was considering injecting as much as €40bn into some of its lenders following Brexit.

As investors looked for somewhere safe to park their cash, yields on benchmark 10-year gilts fell below 1% for the first time.

Meanwhile, the pound lost more ground against the dollar, sliding to a new 31-year low of $1.3224, below Friday’s $1.3230.

IG’s Joshua Mahony said sterling was always likely to be the chief victim for sellers in the event of Brexit as it will suffer from capital outflows as money is moved to safer seas.

“The sheer extent of the uncertainty as to what Brexit really means for the UK economy and future company profits, combined with seismic changes in the political landscape is making it very difficult for investors to establish accurate fair-value levels for stocks, bonds and currencies,” said Rebecca O’Keeffe, head of investment at Interactive Investor.

“The Spanish elections have provided some good news for European leaders as the fallout from the UK's referendum decision saw the Spanish election's equivalent flight to safety in increasing the number of seats for the conservative People's Party. However, the failure to reach an overall majority means an extension of the deadlock and challenges ahead to secure a working government.”

George Osborne said on Monday that the UK was ready to face the future “from a position of strength”, adding that there would be no immediate emergency Budget.

Looking to calm financial markets in his first public address since the referendum results, the Chancellor said in a statement: “Growth has been robust and employment is at a record high. Our economy is now about as strong as it could be to confront the challenge the country now faces."

After the result of the EU referendum, the Bank of England said it stood ready to provide £250bn of additional funds to support the UK’s banks.

In corporate news, budget airline EasyJet tanked after warning that Britain’s vote to the leave the European Union will dent sales in the second half of the year and reduce third-quarter pre-tax profit by around £28m.

Swedish truck maker Volvo was also sharply lower after it said it increased its provision for a possible European Commission fine by more than 60%.

The stoxx 600 banks index was down 7% and trading in RBS and Barclays was automatically halted in London after their share prices fell well over 10%. Housebuilders were also under the cosh, but defensive stocks did well with Diageo, AstraZeneca, United Utilities, Unilever and Reckitt Benckiser all posting healthy gains.

Oil prices were choppy following heavy losses on Friday, with West Texas Intermediate down 1% at $48.85 a barrel and Brent crude 0.4% lower at $48.20.