British pound hits new low, U.K. bond yields lowest ever due to vote uncertainty
LONDON – European stocks and the pound fell further on Monday as concern grew over the potential economic costs of Britain’s vote to bring its country, the world’s fifth-largest economy, out of the European Union.
The British pound, which last week plunged to its lowest level since 1985, dropped another 2.4 per cent to $1.3352, despite the British Treasury’s reassurances that the economy was strong enough to withstand the uncertainty.
WATCH: British treasury chief George Osborne has sought to calm nerves in the markets, as investors worry about the consequences of Britain leaving the European Union.
European stock markets added to their painful losses from Friday, when concern over the vote outcome wiped out $2.1 trillion of stock value from Hong Kong to London to New York.
Britain’s FTSE 100 was down 1.3 per cent at 6,056 while Germany’s DAX shed 1.3 per cent to 9,434 and France’s CAC 40 dropped 1.3 per cent as well to 4,053.
WATCH: Johnson proclaims ‘project fear’ over after British Treasury Chief’s calms market worries
Wall Street was set to drift lower on the open, too, with futures for the Dow Jones industrial average and the Standard and Poor’s 500 index down 0.3 per cent each. Earlier, some Asian markets had bounced back somewhat after news reports said Japanese Prime Minister Shintaro Abe instructed financial officials to take steps to stabilize financial and currency markets.
Traders were watching for more aftershocks as other EU leaders press London to start the complex process of leaving the 28-nation trading bloc. Prime Minister David Cameron wants to wait several months.
“Markets will be nervous given that the EU and U.K. have some mismatch in terms of timing of exit procedures and negotiations,” said Mizuho Bank analysts in a report.
“The EU’s legitimacy may be tested by separatist parties,” it said. “Spanish elections more immediately and then French elections in 2017 add to the complexity of political dynamics involved in negotiations. Brewing uncertainty suggests that the stage is set for potentially stormy global markets.”
In the first direct reflection of business sentiment in Britain, a leading business group said Monday that 20 per cent of its members plan to move some of their operations outside of the U.K. in light of the country’s decision to leave the EU. The Institute of Directors said that a survey of its 1,000 members showed that three out of four believe that Britain’s exit from the EU, or Brexit, will be bad for business.
WATCH: Londoners react to continuing British economic turbulence in the wake of Brexit vote
Earlier, Tokyo’s Nikkei 225 rallied on the reports of government support for markets in the face of uncertainty. It rose 2.4 per cent to close at 15,309.21, rebounding from Friday’s 7.9 per cent decline, its biggest since the 2008 financial crisis. The Shanghai Composite Index gained 1.2 per cent to 2,887.94 and Sydney’s S&P-ASX 200 added 0.4 per cent to 5,134.20.
Hong Kong’s Hang Seng shed 0.2 per cent to 20,227.30 and Seoul’s Kospi rose 0.1 per cent to 1,926.85.
In currency markets, the euro currency used by 19 EU economies declined to $1.1046 from $1.1118. The dollar edged down to 101.99 yen from 102.19.
In energy markets, benchmark U.S. crude rose 13 cents to $47.77 per barrel in electronic trading on the New York Mercantile Exchange. The contract plummeted $2.47 on Friday. Brent crude, used to price international oils, opened down but recovered to gain 27 cents to $49.31 in London. It plunged $2.50 on Friday.
China’s premier called for joint efforts to restore global economic confidence.
“We are seeing increasing uncertainties in the world economy,” said Li Keqiang at the World Economic Forum in the eastern city of Tianjin. “We need to jointly handle challenges, strengthen confidence and create a stable international environment.”
What happens next depends on how policymakers handle the fallout in the coming days, Christine Lagarde, managing director of the International Monetary Fund, said at the Aspen Ideas Festival in Colorado on Sunday.
Economic risks, she said, depend on the level of uncertainty.
“How they come out in the next few days is going to really drive the direction in which risk will go,” Lagarde said.
WATCH: UK needs a ‘concrete plan’ to deal with economic uncertainty in wake of Brexit vote – Expert
The financial markets did not panic too badly Friday after the vote, Lagarde said. She said central bankers put a lot of liquidity into the markets so there wouldn’t be a shortage, as happened during other market plunges, including in 2008.
“It was very much under control. We didn’t see those sort of panic moves,” she told the group.
The surprise outcome of the British vote brought more political turmoil Sunday.
Leaders of the successful campaign to leave the EU stayed largely out of the public eye, offering few signals about their plans.
In Scotland, however, First Minister Nicola Sturgeon said she would consider advising the Scottish Parliament to try to use its power to prevent Britain from leaving the EU. She said Scottish lawmakers might be able to derail the move by withholding “legislative consent” for a British exit, or Brexit.
McDonald reported from Beijing.
© 2016 The Canadian Press