Brexit Risk Rattles Markets as Stocks Sink With Pound

Growing anxiety over the prospect of the U.K. exiting the European Union spooked investors worldwide, hammering equities and weakening the British pound as safe-haven demand spurred gains in the Japanese yen, sovereign debt and gold.

European shares fell for a fourth day as the MSCI Asia Pacific Index slid by the most in two months and U.S. stock index futures dropped. The pound slumped to an eight-week low after a poll showing a 10 percentage-point lead for Britain to leave the EU sent it tumbling late on Friday. The yen rose toward its strongest level since 2014 as 10-year bond yields dropped to records in the U.K., Japan and New Zealand. Oil retreated after a report showed an increase in U.S. drilling rigs, while gold climbed to a four-week high. The price of bitcoins jumped amid speculation supply will tighten.

Optimism has given way to fear in global financial markets since the middle of last week as polls indicated the U.K.’s June 23 referendum on EU membership is too close to call. Economists predict a vote for so-called Brexit will send the pound to the lowest level in more than three decades, while a victory for the ‘Remain’ camp would drive the currency toward the highest this year. Also keeping investors on edge are monetary policy reviews being held this week in the U.S. and Japan.

“Everyone’s scared,” said Ryuta Otsuka, a strategist at Toyo Securities Co. in Tokyo. “There are too many events coming up for investors to take a plunge.”

While the Federal Reserve is seen leaving interest rates unchanged on Wednesday, its post-meeting statement will be scrutinized for signals regarding the timing of the next hike in borrowing costs. Most economists expect the Bank of Japan to expand record monetary stimulus in July rather than on June 16, a Bloomberg survey shows.

Chinese data released Monday added to evidence that the world’s second-largest economy is stabilizing. Industrial production rose 6 percent from a year earlier in May, matching economists’ estimates, and retail sales climbed 10 percent. Financial markets are shut for holidays in Australia and Russia.

Stocks

The Stoxx Europe 600 Index fell 1.4 percent as of 8:20 a.m. London time, while futures on the S&P 500 declined 0.4 percent.

The MSCI Asia Pacific Index sank 2.1 percent as benchmarks in Hong Kong, Seoul, Shanghai and Tokyo tumbled by the most since February. The Shanghai Composite Index and Japan’s Topix both sank more than 3 percent, the region’s biggest losses.

“The market hates uncertainty,” said Yoshinori Ogawa, a markets strategist at Okasan Securities Co. in Tokyo. “Most market participants think that the U.K. will probably remain, but we’re seeing some poll results that show those who’ll vote to leave outnumber the ‘Remain’ camp.”

Currencies

The pound dropped as much as 0.7 percent to $1.4159. It slumped 1.4 percent on Friday after an Orb/Independent newspaper poll showed 55 percent support for the “Leave” campaign, and 45 percent for “Remain.” Surveys at the weekend were less stark, with an online poll by Opinium for the Observer newspaper showing 44 percent support for Britain staying in the EU and 42 percent against. Hedge funds and other large speculators are betting on sterling futures weakness by the most since June 2013, a report from the Commodity Futures Trading Commission showed.

The yen strengthened versus all 16 major peers, advancing 0.9 percent versus the greenback. The BOJ should expand monetary stimulus as soon as this week by boosting bond purchases rather than pushing interest rates further into negative territory, Nobuyuki Nakahara, an influential adviser to Prime Minister Shinzo Abe, said in an interview on Friday.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, declined 0.1 percent after rising 1.1 percent over the previous two sessions. Odds of an increase in U.S. key rates don’t exceed 50 percent before December, according to Fed funds futures tracked by Bloomberg. There is zero chance of a move this week, the data show.

The currencies of Malaysia, South Korea and Taiwan all weakened by at least 0.5 percent, leading declines in Asia. The yuan weakened 0.4 percent from Wednesday’s close in Shanghai as trading resumed after a holiday.

Bitcoins jumped as much as 20 percent from Friday’s closing level to $696.50 in Hong Kong, the highest since February 2014, according to data compiled by Bloomberg. Profits from mining bitcoins will be reduced in July, a process that’s written into the code to limit supply, according to Chinese exchanges OKCoin and Huobi.

Bonds

U.S. Treasuries due in a decade advanced for a fifth day, pushing their yield down by one basis point to 1.63 percent, set for the lowest close since December 2012. The yield on similar-maturity Japanese debt dropped as low as minus 0.165 percent on Monday, while the U.K.’s fell to 1.21 percent. New Zealand’s yield declined to 2.5 percent for the first time as unprecedented levels were also recorded in South Korea and Taiwan.

German government bonds are in “bubble territory” and Allianz SE plans to raise its corporate debt holdings, Chief Investment Officer Andreas Gruber said in an interview. The yield on the 10-year securities dropped below 0.01 percent on June 10, the lowest on record, and was 0.02 percent on Monday.

Commodities

Gold for immediate delivery rose as much as 0.8 percent to $1,284.29 an ounce, the highest since May 16. A Brexit vote on June 23 could propel prices to $1,400, analysts at Capital Economics Ltd. said in a report on Friday.

West Texas Intermediate crude fell 1 percent to $48.56 a barrel after Baker Hughes Inc. data out on Friday showed that rigs targeting crude in the U.S. rose by three to 328 last week, capping the longest run of weekly gains since August.

Source: Bloomberg