Sterling dives, bonds rally as early Brexit results put Leave ahead

By: | Published: June 24, 2016 6:42 AM

Sterling sank and safe-haven bonds jumped in wild Asian trade on Friday as early results from the UK's vote on European Union membership showed the "Leave" camp holding the lead, sparking a wave of profit-taking across risk assets.

SterlingSterling collapsed as far as .4300 at one stage, having earlier stretched to a high for the year at .5022. (Reuters)

Sterling sank and safe-haven bonds jumped in wild Asian trade on Friday as early results from the UK’s vote on European Union membership showed the “Leave” camp holding the lead, sparking a wave of profit-taking across risk assets.

Sterling collapsed as far as $1.4300 at one stage, having earlier stretched to a high for the year at $1.5022. It was last at around $1.4550 in roller coaster trade, its biggest intraday fall since May 2010, and there was no clear indication where it might end the day.

“It’s very jittery and I suppose that’s very much going to be the order of the day until we see final results being announced,” said Robert Rennie, chief currency strategist at Westpac in Sydney. “We are just going to roll from individual result to individual result.”

Also Read: Sterling, stocks rise as markets bet Britain will remain in EU

With 13 of 382 counting areas declared, the Leave camp were ahead by 50.8 percent to 49.2 percent.

The euro turned tail to hit $1.1320, down 0.6 percent on that day as an actual vote for Britain to leave could endanger the future of the entire bloc, and its single currency.

The safe-haven yen recouped early losses to stand at 105.12 per dollar, though Japan’s Nikkei showed surprising resilience to add 0.3 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan started firmer but soon slipped 0.2 percent, with Australia down 0.4 percent and South Korea up 0.16 percent.

FTSE futures were indicated down 2.4 percent, while EMINI futures for the S&P 500 eased 0.5 percent, having climbed 1.76 percent on Thursday.

Financial markets have been racked for months by worries about what Brexit, or a British exit from the European Union, would mean for Europe’s stability.

Early opinion polls had favoured the “Remain” camp. An Ipsos MORI poll put the lead at 8 points while a YouGov poll found 52 percent of respondents said they voted to remain in the EU while 48 percent voted to leave.

Yet a trickle of official results showed the margins were nail-bitingly tight. Traders were particularly spooked by returns from Sunderland showing a large majority for the “Leave” camp and just a narrow win for “Remain” in Newcastle.

“Newcastle was a squeaky win for Remain but Sunderland was a huge kick in the ribs and the bottom has fallen out of the pound,” said Jeremy Cook, chief economist at international payments company, World First.

“These markets are thin, liquidity is poor and a recovery is obviously possible but those traders who were looking to book a quick profit before a restful night’s sleep have had their ideas shattered.”

Safe-haven bonds immediately came back into favour, with U.S. 10-year Treasury futures jumping 19 ticks. Yields on the cash note fell 6 basis points to 1.68 percent.

Investors also priced in even less chance of another hike in U.S. interest rates <0#FF:> given the Federal Reserve had cited a British exit from the EU as one reason to be cautious on tightening.

Commodities likewise swung lower as a Brexit would be seen as a major threat to global growth. U.S. crude shed 72 cents to $49.39 a barrel in erratic trade while Brent fell 69 cents to $50.22.

Copper slipped but gold rose about 1 percent thanks to its perceived safe haven status.

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