Regulation  

Global markets rocked by Brexit vote

Global markets rocked by Brexit vote

Sterling, stock markets and bond yields have tumbled as a result of 51.9 per cent of the UK voting to sever our nation’s 43-year membership of the European Union.

Financial market reaction to the UK’s decision to leave the European Union has been severe despite the Bank of England and the Financial Conduct Authority trying to offer reassurance earlier today.

Since it was announced that the UK opted for a Brexit, Sterling has fallen sharply.

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At the time this article was published, it currently trades at $1.38 to the US dollar (down 8 per cent on the day), but had traded as low as $1.325 (down 12 per cent).

Sterling is also lower against the yen (down 11 per cent) and the euro (down 6 per cent).

Equity markets have also suffered a major blow with FTSE 100 down 5.5 per cent on the day and the more domestically oriented FTSE 250 down 8.6 per cent.

UK gilt yields also fell sharply: the yield on 10-year gilts opened 35 basis points (bps) lower, but is currently trading at 1.1 per cent, 27bps lower.

Yet reaction has not been confined to the UK.

Global stocks have suffered a sharp reaction to the UK’s decision.

The Euro Stoxx index is down 9 per cent, Japanese stocks closed 8 per cent lower.

Global bond yields are also sharply lower with US Treasuries down 20bps to 1.54 per cent (35bps at worst) and German bund yields down 16bps to minus 0.06 per cent.

Bob Woods, chairman of Mattioli Woods, said we are seeing what we feared in the event of a vote to leave the EU – chaos in currency markets and significant falls in equity markets, led by the UK and Europe, but including Asia and the US.

Mr Woods said: “We still have to consider whether the Federal Reserve will raise US rates, the impact (if any) of Trump vs Clinton in November’s Presidential elections, low interest rates, low inflation and a world seemingly fixated by the level of China’s GDP.

“We said last month that “relatively sanguine equity markets can turn quickly” and so it appears first thing today, with investors reacting, of course, to the seismic, and clearly unexpected, vote by nearly 52 per cent of UK voters to leave the EU.

“We believe in the fundamentals of assets when making investment/allocation decisions, but sometimes sentiment has the momentum. As of today, both seem aligned in driving stocks down.”

Ritu Vohora, investment director of the equities team at M&G Investments, said the political and economic uncertainties are likely to require an increase in the equity risk premium as markets absorb the political and economic ramifications in the days and weeks to come.