US pre-open: Stocks set for sharp losses on Brexit vote

Stocks on Wall Street looked set to open sharply lower on Friday, taking their cue from heavy losses in Europe after the UK voted to leave the European Union.

At 1210 BST, Dow Jones Industrial Average futures were down 3.1%, while S&P 500 and Nasdaq futures were 3.8% weaker.

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.

European stocks indices were all sharply lower, with the benchmark Stoxx 600 down 6.9%, Germany’s DAX off 6.7%, France’s CAC 40 7.9% weaker and London’s FTSE 100 down 4.6%.

Meanwhile, the pound fell to a 31-year low of $1.3229 before rallying back to $1.4000.

British prime minister David Cameron announced his resignation on Friday, saying the UK needed “fresh leadership” to “steer the country” out of the EU.

The Bank of England was quick to respond to the referendum outcome, saying 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.

Bank of America Merrill Lynch said: “Once the dust of the knee-jerk market reaction settles, we think that the UK's economy will clearly be the main victim, but also that the shock for the Euro area and the global economy is likely to be significant. Policy responses will be needed beyond the ‘first-aid’ remedy market disruption normally requires.”

As investors fled to safety, gold rallied 5%, but oil prices tanked. West Texas Intermediate was down 4.8% at $47.71 a barrel and Brent crude was 5% lower at $48.39.

Britain’s vote for Brexit prompted some analysts to re-think their expectations on the timing of the next interest rate hike.

ING pointed out that its view on the timing of the next Fed rate rise had always been contingent on a Remain vote, as financial market stability was one of the three conditions for the US central bank to hike.

“We believe US financial market tightness will increase significantly following the UK’s Leave vote, irrespective of what is happening elsewhere in the US economy.”

The bank said even a December rate hike looks like a long shot now, with any further tightening unlikely until 2017.