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Wall Street joins global market sell-off as Brexit recession looms - live Wall Street joins global market sell-off as Brexit recession looms - live
(35 minutes later)
3.46pm BST
15:46
Julia Kollewe
More from Dominic Rossi, global chief investment officer at Fidelity International. In a conference call, he said he was asked by a client this morning how Brexit compared with the ERM debacle of 1992. He said:
“This is without doubt a far more important event in that Brexit signifies a structural break in Britain’s economic and political models models, which we very much had in place since the second world war. It really does break the post-war settlement in many ways. The break in the political model is going to be more profound than the break in the economic model.”
Scotland is likely to hold a referendum within two years and he saw a “high prospect” that it will break from the UK after 300 years, while the Good Friday agreement in Northern Ireland is also at risk.
Rossi predicted a “mild recession” by Christmas– not as bad as during the financial crisis of 2009 – but one that would last until 2017. He reckons UK growth will start slowing over the summer and that the economy will fall into recession – defined as two or more consecutive quarters of contraction – in the autumn.
Turning to markets, Rossi think the $1.40 level against the dollar that sterling has held over 30 years could switch from being a floor to a ceiling. The pound dropped to $1.38 after the vote to leave.
“Sterling will work its way towards the low $1.30s in the near future over the next few weeks and months.”
Against the euro, he thinks that sterling – currently at €1.24 – will fall through €1.20.
He explained that the FTSE 100 index could actually rally if sterling continues to fall towards $1.30, as many constituents are non-sterling companies which report their revenues mainly in dollars. [Something we are already seeing]
“European stocks are reflecting some economic impact from Brexit but I don’t think eurozone will enter a recession – the UK will have the privilege of that.”
“Brexit was a black swan event and there is a potential flock of black swans flying over Europe with the political calendar,” he said – referring to upcoming elections in Spain on Sunday and Germany and France next year.
Turning to UK interest rates, Rossi does not expect rate cuts any time soon.
“I wasn’t surprised that Mark Carney didn’t cut rates today. It is going to be very difficult for him to do so with sterling weak.” [as this pushes up inflation]
“He will want to be confident that sterling has bottomed before he does so because there will be a one-time inflationary impact. That might not be until third or fourth quarter.”
“What is really important is that those Brexit forces don’t themselves fragment.. If that were all to splinter then I think the currency markets would take a very dim view. We really do need now political leadership.
“I would not be surprised at all if the first thing that the new prime minister does is call a general election.”
3.25pm BST
15:25
Dominic Rushe
Back with the US, and the Securities and Exchange Commission issued this statement after Wall Street opened:
The U.S. equity markets opened normally for trading this morning. We are continuing to closely monitor the markets and have been in regular communication with financial institutions, exchanges, and market utilities, as well as our financial regulatory counterparts.
3.23pm BST
15:23
The FTSE 100 is off its worst levels following the promise from central banks to provide liquidity when necessary, says Connor Campbell, financial analyst at Spreadex:
There isn’t much to explain the FTSE’s rather remarkable recovery. A decent strand of buyers swept in when the UK index hit its earlier lows, helping to lift it back above 6200 despite a continued battering for its Barclays/RBS/Lloyds banking trio. The liquidity support promised by the Bank of England (and subsequently the ECB and Federal Reserve) appears to have been the main catalyst for the turnaround, especially given the fact that the afternoon was still littered with worrying news (namely the likelihood of a second independence referendum in Scotland).
While the FTSE rose phoenix-like from the ashes of its earlier decline, the Eurozone indices weren’t quite as lucky. The 5-6% drops by the DAX and CAC, while signalling a rebound from their respective morning nadirs, still are far worse than those seen in the UK and US (the Dow is down just over 2%), suggesting investors may not only be worried by the Brexit, but by the weekend’s Spanish election.
Even worse than the Eurozone was the pound. Sterling is still hovering around 31 year lows, at $1.37 against the dollar (dipping from $1.39 following Nicola Sturgeon’s suggestion of a 2nd Scottish referendum) and $1.24 against the euro. It is understandable that the pound has been the instrument that has struggled the most to reduce its losses, though it does have the prospect of a wave of central bank rank cuts to potentially look forward to.
3.18pm BST
15:18
By mid afternoon, trading volumes for the FTSE 100 reached €20.5bn, around twice the recent daily average, according to equity exchange Bats Europe. Its full statistics show:
3.14pm BST3.14pm BST
15:1415:14
More reaction to the Brexit vote from across the Atlantic, this time from Treasury secretary Jacob Lew, and another statement designed to reassure:More reaction to the Brexit vote from across the Atlantic, this time from Treasury secretary Jacob Lew, and another statement designed to reassure:
The people of the United Kingdom have spoken and we respect their decision. We will work closely with both London and Brussels and our international partners to ensure continued economic stability, security, and prosperity in Europe and beyond.The people of the United Kingdom have spoken and we respect their decision. We will work closely with both London and Brussels and our international partners to ensure continued economic stability, security, and prosperity in Europe and beyond.
We continue to monitor developments in financial markets. I have been in regular contact in recent weeks with my counterparts and financial market participants in the UK, EU and globally and we are continuing to consult closely. The UK and other policymakers have the tools necessary to support financial stability, which is key to economic growth.We continue to monitor developments in financial markets. I have been in regular contact in recent weeks with my counterparts and financial market participants in the UK, EU and globally and we are continuing to consult closely. The UK and other policymakers have the tools necessary to support financial stability, which is key to economic growth.
3.09pm BST3.09pm BST
15:0915:09
The vote for Brexit will not immediately affect the Republic of Ireland’s credit rating, said ratings agency S&P:The vote for Brexit will not immediately affect the Republic of Ireland’s credit rating, said ratings agency S&P:
S&P Global Ratings said today that the U.K.’s vote to leave the European Union does not immediately affect the sovereign credit rating on the Republic of Ireland (A+/Stable/A-1).S&P Global Ratings said today that the U.K.’s vote to leave the European Union does not immediately affect the sovereign credit rating on the Republic of Ireland (A+/Stable/A-1).
We believe that the effect of an exit of the U.K. from the European Union (Brexit) on the Irish economy would likely be negative, at least in the short to medium term, but of uncertain magnitude and mixed across sectors. In terms of direct trade relationships, the U.K. accounts for only around 12.4% of Irish goods and 20% of Irish service exports, well below 50% levels observed when both countries joined the European Community in 1973.We believe that the effect of an exit of the U.K. from the European Union (Brexit) on the Irish economy would likely be negative, at least in the short to medium term, but of uncertain magnitude and mixed across sectors. In terms of direct trade relationships, the U.K. accounts for only around 12.4% of Irish goods and 20% of Irish service exports, well below 50% levels observed when both countries joined the European Community in 1973.
However, the sectors that serve the U.K. market are, on average, more labor intensive and any negative shocks could damage the mending Irish labor market. Other negative economic risks associated with a Brexit could include the weakening of the U.K.’s financial service sector, with which Ireland’s financial service sector is closely linked, and the potential ripple effect stemming from lower demand from the rest of the EU.However, the sectors that serve the U.K. market are, on average, more labor intensive and any negative shocks could damage the mending Irish labor market. Other negative economic risks associated with a Brexit could include the weakening of the U.K.’s financial service sector, with which Ireland’s financial service sector is closely linked, and the potential ripple effect stemming from lower demand from the rest of the EU.
Furthermore, many aspects of Britain’s relationship with the EU, and therefore the U.K.-Irish relationship, would be unclear, increasing uncertainties related to trade and investment between the two countries.Furthermore, many aspects of Britain’s relationship with the EU, and therefore the U.K.-Irish relationship, would be unclear, increasing uncertainties related to trade and investment between the two countries.
We do not believe the potential relocation of some U.K. businesses to Ireland would fully offset the overall negative impact of Brexit in the short to medium term.We do not believe the potential relocation of some U.K. businesses to Ireland would fully offset the overall negative impact of Brexit in the short to medium term.
Nevertheless, we expect the Irish economy to stay resilient enough to withstand the negative impact of the Brexit. In our view, the pace of fiscal consolidation and reduction in general government debt may slow down somewhat, but the ratings will remain supported by Ireland’s strong institutions, predictable policy making, and improving external balance sheet.Nevertheless, we expect the Irish economy to stay resilient enough to withstand the negative impact of the Brexit. In our view, the pace of fiscal consolidation and reduction in general government debt may slow down somewhat, but the ratings will remain supported by Ireland’s strong institutions, predictable policy making, and improving external balance sheet.
3.06pm BST3.06pm BST
15:0615:06
The FTSE 100 is indeed now well off its worst levels, helped by the fact that a number of major companies have their earnings in dollars and should benefit from the plunge in the pound.The FTSE 100 is indeed now well off its worst levels, helped by the fact that a number of major companies have their earnings in dollars and should benefit from the plunge in the pound.
The index is now off 1.9% at 6218 and is actually up 3.3% on the week, helped by the gains in the early part of the week when investors convinced themselves that the Remain side would win the referendum.The index is now off 1.9% at 6218 and is actually up 3.3% on the week, helped by the gains in the early part of the week when investors convinced themselves that the Remain side would win the referendum.
2.45pm BST2.45pm BST
14:4514:45
Could it happen.....?Could it happen.....?
FTSE 100 down just 2.5% from down 9%....and its about 25/1 to close up on the day. Just a thoughtFTSE 100 down just 2.5% from down 9%....and its about 25/1 to close up on the day. Just a thought
2.41pm BST2.41pm BST
14:4114:41
US stock market joins world routUS stock market joins world rout
Wall Street is joining the global selloff, as the shockwaves from Britain’s Brexit vote reach the other side of the Atlantic.Wall Street is joining the global selloff, as the shockwaves from Britain’s Brexit vote reach the other side of the Atlantic.
The Dow Jones industrial average has tumbled by 505 points in the first few minutes, a plunge of 2.8%. That looks like it’s biggest intraday fall since January.The Dow Jones industrial average has tumbled by 505 points in the first few minutes, a plunge of 2.8%. That looks like it’s biggest intraday fall since January.
That takes the Dow down to 17,503, in a wave of panicky selling as US traders digest the shock news from the UK.That takes the Dow down to 17,503, in a wave of panicky selling as US traders digest the shock news from the UK.
They have to absorb the fact that Britain has voted to leave the EU, the resignation of prime minister David Cameron, the slump in the pound to a 31-year low, and very deep losses across Europe’s stock market.They have to absorb the fact that Britain has voted to leave the EU, the resignation of prime minister David Cameron, the slump in the pound to a 31-year low, and very deep losses across Europe’s stock market.
Not forgetting the promises of emergency liquidity, if needed, from the Bank of England, the ECB and the Federal Reserve.Not forgetting the promises of emergency liquidity, if needed, from the Bank of England, the ECB and the Federal Reserve.
Tech stocks are being hit hard, sending the Nasdaq index down almost 4%:Tech stocks are being hit hard, sending the Nasdaq index down almost 4%:
BREAKING: Nasdaq seeing worst drop since Nov, 2011 » https://t.co/TGMGUaWBm7 pic.twitter.com/VhBwryqrdzBREAKING: Nasdaq seeing worst drop since Nov, 2011 » https://t.co/TGMGUaWBm7 pic.twitter.com/VhBwryqrdz
UpdatedUpdated
at 2.43pm BSTat 2.43pm BST
2.31pm BST2.31pm BST
14:3114:31
Phillip InmanPhillip Inman
At least one currency dealer in the City has profited from the Leave vote.At least one currency dealer in the City has profited from the Leave vote.
ACE-FX, which has branches in Canary Wharf and London Bridge has spent the day telling customers that it sold all its currency yesterday and has nothing left in its vaults.ACE-FX, which has branches in Canary Wharf and London Bridge has spent the day telling customers that it sold all its currency yesterday and has nothing left in its vaults.
Only customers who pre-ordered currency were allowed to complete transactions.Lines of disappointed people, mainly tourists keen to buy cheaper pounds, were turned away.Only customers who pre-ordered currency were allowed to complete transactions.Lines of disappointed people, mainly tourists keen to buy cheaper pounds, were turned away.
UpdatedUpdated
at 2.41pm BSTat 2.41pm BST
2.29pm BST2.29pm BST
14:2914:29
And here’s US president Obama on Brexit:And here’s US president Obama on Brexit:
President Obama on #Brexit decision: "The people of the United Kingdom have spoken, and we respect their decision." pic.twitter.com/lPXO3CGztxPresident Obama on #Brexit decision: "The people of the United Kingdom have spoken, and we respect their decision." pic.twitter.com/lPXO3CGztx
UpdatedUpdated
at 2.41pm BSTat 2.41pm BST
2.24pm BST2.24pm BST
14:2414:24
Here’s the full G7 statement referred to by George Osborne earlier:Here’s the full G7 statement referred to by George Osborne earlier:
We, G7 Ministers and Governors, respect the intention expressed today by the people of the United Kingdom to exit from the European Union.We, G7 Ministers and Governors, respect the intention expressed today by the people of the United Kingdom to exit from the European Union.
We are monitoring market developments following the outcome of the referendum on the UK’s membership of the EU.We are monitoring market developments following the outcome of the referendum on the UK’s membership of the EU.
We affirm our assessment that the UK economy and financial sector remain resilient and are confident that the UK authorities are well-positioned to address the consequences of the referendum outcome. We recognize that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. G7 central banks have taken steps to ensure adequate liquidity and to support the functioning of markets.We affirm our assessment that the UK economy and financial sector remain resilient and are confident that the UK authorities are well-positioned to address the consequences of the referendum outcome. We recognize that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. G7 central banks have taken steps to ensure adequate liquidity and to support the functioning of markets.
We stand ready to use the established liquidity instruments to that end.We stand ready to use the established liquidity instruments to that end.
We will continue to consult closely on market movements and financial stability, and cooperate as appropriate. We remain united and continue to maintain our solidarity as G7.We will continue to consult closely on market movements and financial stability, and cooperate as appropriate. We remain united and continue to maintain our solidarity as G7.
UpdatedUpdated
at 2.25pm BSTat 2.25pm BST
2.20pm BST2.20pm BST
14:2014:20
Private investors are seeing the day’s falls as a buying opportunity according to investment manager Hargreaves Lansdown.Private investors are seeing the day’s falls as a buying opportunity according to investment manager Hargreaves Lansdown.
Som 80% of the trades through its share dealing service this morning were purchases, compared to around 60% on an average day. Laith Khalaf, Hargreaves Lansdon senior analyst said:Som 80% of the trades through its share dealing service this morning were purchases, compared to around 60% on an average day. Laith Khalaf, Hargreaves Lansdon senior analyst said:
Private investors are clearly seeing today’s market fall as a buying opportunity, and are out in force bargain-hunting. The most popular stocks are also those which have seen their prices hit hardest this morning, namely the banks and house builders.Private investors are clearly seeing today’s market fall as a buying opportunity, and are out in force bargain-hunting. The most popular stocks are also those which have seen their prices hit hardest this morning, namely the banks and house builders.
We know that private investors have been sitting on the sidelines until after the referendum, and early indications are there may be some buying activity now the market has dropped.We know that private investors have been sitting on the sidelines until after the referendum, and early indications are there may be some buying activity now the market has dropped.
2.09pm BST2.09pm BST
14:0914:09
The US Federal Reserve is the latest central bank after the Bank of England and European Central Bank to try and reassure it is ready to act. In a statement it said:The US Federal Reserve is the latest central bank after the Bank of England and European Central Bank to try and reassure it is ready to act. In a statement it said:
The Federal Reserve is carefully monitoring developments in global financial markets, in cooperation with other central banks, following the results of the U.K. referendum on membership in the European Union.The Federal Reserve is carefully monitoring developments in global financial markets, in cooperation with other central banks, following the results of the U.K. referendum on membership in the European Union.
The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy.The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy.
It is not so long ago that the US central bank was expected to raise interest rates again after its hike in December. That is now unlikely to happen in the immediate future. Indeed, could there even be a cut?It is not so long ago that the US central bank was expected to raise interest rates again after its hike in December. That is now unlikely to happen in the immediate future. Indeed, could there even be a cut?
WSJ's Hilsenrath: #Brexit means Fed likely to delay rate increases. Markets see higher chance for rate cut than hike pic.twitter.com/Z2sLlZDedXWSJ's Hilsenrath: #Brexit means Fed likely to delay rate increases. Markets see higher chance for rate cut than hike pic.twitter.com/Z2sLlZDedX
UpdatedUpdated
at 2.14pm BSTat 2.14pm BST
2.08pm BST2.08pm BST
14:0814:08
Jill TreanorJill Treanor
Morgan Stanley is denying that it is moving 2,000 staff out of the City, as the BBC is reporting.Morgan Stanley is denying that it is moving 2,000 staff out of the City, as the BBC is reporting.
“The BBC story is totally false” a Morgan Stanley spokesman said .“The BBC story is totally false” a Morgan Stanley spokesman said .
UpdatedUpdated
at 2.54pm BSTat 2.54pm BST
2.03pm BST2.03pm BST
14:0314:03
Morgan Stanley 'moving 2,000 staff out of London'Morgan Stanley 'moving 2,000 staff out of London'
The BBC’s Ben Thompson is reporting that US investment bank Morgan Stanley has begun the process of moving some staff out of the City, to Ireland and Germany.The BBC’s Ben Thompson is reporting that US investment bank Morgan Stanley has begun the process of moving some staff out of the City, to Ireland and Germany.
Sources at Morgan Stanley tell BBC it's already begun process of moving 2,000 London based investment banking staff to Dublin or FrankfurtSources at Morgan Stanley tell BBC it's already begun process of moving 2,000 London based investment banking staff to Dublin or Frankfurt
We’re looking into it now.We’re looking into it now.
It’s certainly plausible; last week, Morgan Stanley said it could relocate 1,000 workers out of the UK if the Leave campaign won yesterday’s referendum.It’s certainly plausible; last week, Morgan Stanley said it could relocate 1,000 workers out of the UK if the Leave campaign won yesterday’s referendum.