The UK has voted to leave the EU, surprising many in global markets who had expected a narrow win for the “remain” camp. Having edged higher in the run up to the referendum vote, the pound has fallen against the dollar by more than 9% since yesterday’s close, its biggest ever one-day decline. This move has taken it through the lows posted in the depths of the financial crisis and to levels not seen since 1985. The pound also fell against other currencies, notably the Japanese yen due to its perceived “safe haven” status. The euro has not been immune, falling against the US dollar as traders consider the consequences for the remaining EU nations.
Domestically-focused sectors were hit particularly hard, notably financials, banks and housebuilders along with many mid- and small-cap companies.
At the time of writing, the largest falling sector in the FTSE 100 was financials, down 16.1%, followed by consumer cyclicals, with the sector off 11.6%. The most resilient sector was defensive healthcare (-2.1%), with technology (-2.3%) also holding up well due to its global exposure. Precious metals miners rallied sharply, with Mexican silver producer Fresnillo up 11% and Randgold Resources jumping 14%.
The biggest individual fallers in the index were Taylor Wimpey (-24%) and Persimmon (-23.8%) followed by Berkeley (-21%). Lloyds Banking Group fell 20% and Barclays was down 17%.
After an initial 8%+ fall to below the 6,000 level, bargain hunters moved in and the FTSE 100 moved off lows. It was down 4.7% and above the 6,000 level after an hour of frantic trading.
Globally, there have been outflows from all kinds of economically-sensitive assets. Crude oil has tumbled over 6%, and industrial metals have sunk with copper falling 3%. Stock market indices around the world have retreated with Japan’s Nikkei falling 9.7% and the Hang Seng falling 4.6% in Hong Kong. European markets have opened sharply lower too with Germany’s DAX 8.2% lower. Meanwhile, gold has soared 6%, and other safe haven assets such as US Treasuries have risen strongly.
As politicians grapple with what happens next, and everyone else weighs up the consequences, markets are likely to remain volatile with high volumes. There will be debate and uncertainty over what will happen next: how quickly will the UK invoke Article 50? What does the UK economy look like outside of the EU? Will this result in a break-up of the United Kingdom, with another referendum for Scotland? Could it give rise again to structural questions around the future of the European Union and result in other nations leaving?
Markets will also have to consider what global central banks and governments will do in response to the vote. There will likely be action to stabilise markets with the Bank of England expected to put some kind of easing in place (via an interest rate cut or by re-starting quantitative easing) rather than being concerned about a short-term sterling related spike in inflation. It is also likely that business will start to row back on the strong rhetoric seen ahead of the vote.
We seek to operate as normal during these unprecedented times, but ask for our clients’ forbearance during the inevitable turbulence. There may be significant interruptions to trading and it may be necessary to place “limit” rather than “market” orders when markets are in operation. Our Edinburgh-based helpdesk may also experience a much higher than normal level of enquiries.
To read Charles Stanley’s view on the market implications of the vote click here.
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