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Markets braced for choppy week as pound falls amid Brexit fears Markets braced for choppy week as pound falls amid Brexit fears
(35 minutes later)
Financial markets suffered falls on Monday amid growing fears that Britain could vote to leave the EU.Financial markets suffered falls on Monday amid growing fears that Britain could vote to leave the EU.
Britain’s blue-chip FTSE 100 index hit a three-week low in early trading as another bout of Brexit angst hit the City, after Asian stocks fell the most in more than two months.Britain’s blue-chip FTSE 100 index hit a three-week low in early trading as another bout of Brexit angst hit the City, after Asian stocks fell the most in more than two months.
The pound also suffered when trading opened after a weekend of contrasting polls about the possibility of a UK vote to leave the EU. Sterling fell to as low as $1.4159 in early Asian trade, its weakest since April 18. The pound suffered when trading opened after a weekend of contrasting polls about the possibility of a UK vote to leave the EU. Sterling fell to as low as $1.4159 in early Asian trade, its weakest since April 18.
The pound also hit a six-week low of €1.2598 against the euro, and the cost of insuring against losses against the single currency hit a record high.The pound also hit a six-week low of €1.2598 against the euro, and the cost of insuring against losses against the single currency hit a record high.
Sapping confidence further over recent days has been a steady drip of economic data that has highlighted an underpowered world economy despite years of massive intervention by central banks around the world. Joe Rundle, head of trading at City firm ETX Capital, says the markets are on “full Brexit alert”.
“Momentum is behind the Vote Leave camp as polls seem to show more support for Brexit than at any point in the campaign so far.
We’ve seen heavy selling and shortened our Brexit market price from over 80% - implying a one-in-five chance of Britain leaving the EU – to 66%, which indicates a one-in-three chance of Brexit,” Rundle explained.
Confidence has also been sapped by a steady drip of disappointing economic data in recent days, highlighting an underpowered world economy despite years of massive intervention by central banks around the world.
The US Federal Reserve, Bank of England, Swiss National Bank and the Bank of Japan all meet this week. All are expected to hold monetary policy steady against a backdrop of caution heightened by the global impact from a possible Brexit.The US Federal Reserve, Bank of England, Swiss National Bank and the Bank of Japan all meet this week. All are expected to hold monetary policy steady against a backdrop of caution heightened by the global impact from a possible Brexit.
Related: Five threats to American prosperity tie the hands of its banker-in-chiefRelated: Five threats to American prosperity tie the hands of its banker-in-chief
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.6%, its biggest daily fall since 5 April. It has fallen 3.4% in the last two sessions.MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.6%, its biggest daily fall since 5 April. It has fallen 3.4% in the last two sessions.
Japanese stocks led regional losses with the benchmark index falling 3% in choppy trade.Japanese stocks led regional losses with the benchmark index falling 3% in choppy trade.
European markets followed suit, with the FTSE 100 shedding 40 points to 6076, a fall of 0.7%. Germany’s DAX fell by 1.2%, while the French CAC lost over 1%.European markets followed suit, with the FTSE 100 shedding 40 points to 6076, a fall of 0.7%. Germany’s DAX fell by 1.2%, while the French CAC lost over 1%.
“There are many long-term investors who have given up on Japanese stocks as there are no structural reforms being delivered. Meanwhile, monetary policy decisions only have short-term effects,” said Michiro Naito, executive director at equity derivatives at JPMorgan.
Net selling by foreign investors from January through May was roughly 4.5 trillion yen ($42.07bn) in Japanese cash equities, according to exchange data, a stark turn from net purchases of about 2.83 trillion yen in the same period last year.
Investors hunting for bright spots in Asia this year in China and India have also been disappointed by poor data.Investors hunting for bright spots in Asia this year in China and India have also been disappointed by poor data.
Latest data showed China’s fixed-asset investment growth cooling to 9.6% in January-May from the same period a year earlier, below market expectations, while the statistics bureau said downward pressures still exist in the economy. Figures released over the weekend showed China’s fixed-asset investment growth cooling to 9.6% in January-May from the same period a year earlier, below market expectations, while the statistics bureau said downward pressures still exist in the economy.
“We have downgraded the China market because of the debt problems and we think by the third quarter, growth numbers would start reflecting a broader slowdown,” said Francis Cheung, head of China and Hong Kong strategy at CLSA. That has fuelled concerns that China’s economy is slowing.
“The run of overnight China data will provide cold comfort to markets already fretting over the global growth outlook,” said Marc Ostwald of ADM Investor Services.
Reflecting the bearish sentiment, S&P e-mini futures were down 0.4% in Asia after Wall Street marked steep losses on Friday. A shootout in Orlando that killed dozens and injured many others only added to the pessimism.Reflecting the bearish sentiment, S&P e-mini futures were down 0.4% in Asia after Wall Street marked steep losses on Friday. A shootout in Orlando that killed dozens and injured many others only added to the pessimism.
In currency markets, the mood was one of risk aversion with the Japanese yen rising to a five-week high against the dollar. The yen was trading at 106.05 per dollar, its lowest since 3 May.In currency markets, the mood was one of risk aversion with the Japanese yen rising to a five-week high against the dollar. The yen was trading at 106.05 per dollar, its lowest since 3 May.
Two polls on Saturday showed British voters were still closely divided on whether to stay or go.Two polls on Saturday showed British voters were still closely divided on whether to stay or go.
“Ahead of the referendum, many look for sterling to underperform and the yen and Swiss franc to outperform,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said in a note.“Ahead of the referendum, many look for sterling to underperform and the yen and Swiss franc to outperform,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said in a note.
“The euro and central and eastern European currencies are vulnerable, while risk assets, in general, are expected to weaken on a Brexit victory,” he said.“The euro and central and eastern European currencies are vulnerable, while risk assets, in general, are expected to weaken on a Brexit victory,” he said.
Crude oil futures extended losses after plunging 3 percent on Friday, pressured by the stronger dollar and data showing the U.S. oil drilling rig count rose for the second week in row.Crude oil futures extended losses after plunging 3 percent on Friday, pressured by the stronger dollar and data showing the U.S. oil drilling rig count rose for the second week in row.
U.S. crude futures fell 0.8 percent to $48.69 a barrel, while Brent slipped 0.6 percent to $50.25.U.S. crude futures fell 0.8 percent to $48.69 a barrel, while Brent slipped 0.6 percent to $50.25.