Europe open: Stocks drop as investors shun risk amid Brexit fears

European stocks fell in early trade while government bonds rallied as risk-averse investors grew increasingly concerned the UK might vote to leave the European Union, and ahead of rate announcements from the Federal Reserve, the Bank of England and the bank of Japan later this week.

At 0910 BST, the benchmark Stoxx 600 index was down 1%, Germany’s DAX was off 0.9% and France’s CAC 40 was 1% lower.

“With the 'leave' campaign gaining ground and some polls even having them in the lead for the first time since April traders continue to scale back their risk exposure,” said Markus Huber, a trader at City of London Markets.

“As it is often the case in situations of extreme uncertainty markets will continue to price in a worst case scenario meaning further declines are likely in the days ahead except if there would be a substantial shift in public opinion or some kind of verbal intervention from politicians or central bankers to bring back calm into the markets.

“No doubt markets are heavily oversold in the short-term but with overall sentiment remaining very negative and market liquidity not necessarily very high, traders are preferring to sell rallies for now with more downside possible.”

As investors looked for somewhere safe to park their cash, yields on Germany’s 10-year bund turned negative for the first time, while the yield on the 10-year UK gilt was three basis points lower at 1.187%. When a bond falls below zero it means investors are effectively paying the government to hold its bonds.

Oil prices retreated, with West Texas Intermediate down 1.4% at $48.19 a barrel and Brent crude down 1.3% at $49.68.

Meanwhile, the pound was under the cosh again as more polls suggested the UK would vote to leave the European Union in next week’s referendum. It was down 0.6% against both the euro the US dollar.

Societe Generale strategist Kit Juckes said: “Our best guess of a post-Brexit reaction is still that GBP/USD loses 5-10% quickly, dragging other European currencies down too against the yen and dollar.”

“What’s changing this week…is that the very near-term outlook around the vote is now more symmetrical. GBP/USD is now as likely to rally by 10 figures in the immediate aftermath of the vote as to fall by 10, depending on the outcome.”

Brexit wasn’t the only thing on investors’ minds, as this week sees rate announcements from the FOMC on Wednesday, and the BoE and BoJ on Thursday.

In corporate news, Ashtead was on the front foot after the equipment rental firm said it had a strong fourth quarter and announced a bumper dividend and a £200m share buyback.

Shares in London-listed electronic component maker Premier Farnell rocketed after it agreed to be bought by Swiss-based Daetwyler Holding for 165p per share in cash.

Denmarks’ Novo Nordisk was sharply lower despite announcing that its best-selling diabetes drug cuts the risk of heart attacks by 13%.

On the data front, Eurozone industrial production figures are due at 1000 BST. In the US, retail sales are at 1330 BST while business inventories are at 1500 BST.