Pound slump deepens amid Brexit turmoil while Japan stocks rally

The aftershocks of the U.K.’s vote to leave the European Union continued to reverberate across financial markets, with the pound extending its selloff near a 31-year low and Asian stocks outside Japan slipping with oil. Sterling added to Friday’s record drop and U.K. stock index futures tumbled more than 4 percent, weighed down by the prospect of months of uncertainty amid turmoil within Britain’s two major political parties and Scotland agitating anew for independence. The Norwegian krone and Malaysia’s ringgit weakened as crude slid toward $47 a barrel. While gold and Treasuries surged amid demand for haven assets, the tables were turned in Japan, where equities rebounded from their worst day in five years on prospects the government will stabilize the market. The victory for Brexit tore through world markets on Friday, pummeling the pound and high-yielding assets as more than $2.5 trillion was wiped from global equity values. Prime Minister David Cameron resigned without spelling out when the U.K. intends to leave the EU and eight members of Labour Party leader Jeremy Corbyn’s team quit amid calls for his ouster. U.S. Secretary of State John Kerry travels to Brussels and then London Monday as Nicola Sturgeon, the first minister of Scotland -- whose people voted to stay in the EU -- teases the possibility of a second referendum on independence from the U.K. “It’s going to be a very tough week,” said James Audiss, senior investment adviser at Shaw and Partners in Sydney, which manages about $7.4 billion. “Unless an investor has a really strong view one way or the other, you’d be brave to buy in. It will be a really volatile week and people are scared to position into things.” The next days and weeks will likely be key for central banks as they seek to limit volatility and prevent credit markets from seizing up. As the vote tally came in on Friday -- surprising many investors who had bought risk assets in the lead-up to the referendum amid optimism the “Remain” camp would prevail -- Governor Mark Carney said the Bank of England could pump billions of pounds into the financial system. The European Central Bank said it will give lenders all the funding they require, while in the U.S., the Federal Reserve said it was “carefully monitoring” financial markets. The vote for Brexit has spurred traders to price in a 10 percent chance of the Fed changing tack and cutting interest rates next month, futures show. Currencies The pound slipped another 2.2 percent to $1.3377 as of 10:46 a.m. Tokyo time, extending Friday’s 8.1 percent plunge. The euro weakened 1.1 percent versus the greenback, after sliding 2.4 percent in the last session. With protesters angry at the result taking to the streets at the weekend and circulating petitions calling for a fresh vote, the EU’s founding members bolstered pressure on the U.K. to leave the group as soon as possible. Cameron has said he is in no hurry to make the move, indicating he will wait as long as three months before making way for a new leader who will be tasked with negotiating the exit. “People are finding it difficult to comprehend what Brexit implies for the future -- we don’t know yet what the magnitude of the shock will be,” said Steven Barrow, head of Group-of-10 strategy at Standard Bank Group Ltd. in London. “So far, in terms of sterling-dollar, we’ve seen half the decline we’re likely to see this year.” The krone sank 3.1 percent, bringing its two-day drop to more than 5 percent, while the ringgit slid 0.9 percent as lower oil prices dimmed prospects for oil-exporting nations. The Canadian dollar dropped 0.6 percent as the currencies of Australia and New Zealand, which are also heavily exposed to commodity markets, weakened 0.9 percent. The yen strengthened 0.5 percent to 101.70 per dollar. It jumped 3.9 percent in the last session and climbed as high as 99.02, the highest since 2013. Finance Minister Taro Aso told reporters Monday that Prime Minister Shinzo Abe has asked for various measures to stabilize Japanese markets. The comments came after a meeting between officials including Aso, Abe and Bank of Japan Deputy Governor Hiroshi Nakaso. Stocks The MSCI Asia Pacific excluding Japan Index fell 0.9 percent as benchmarks retreated in Hong Kong, Singapore and South Korea. Japan’s Topix advanced 1.1 percent, after plunging 7.3 percent on Friday. Futures on the FTSE 100 Index tumbled 4.1 percent, while contracts on the S&P 500 lost 0.5 percent. Britain’s decision to ditch the EU will unleash as much as $300 billion of selling by automated quant programs in the already-battered U.S. stock market, Marko Kolanovic, the JPMorgan Chase & Co. derivatives strategist, wrote in a note late on Friday. Equity investors in the U.S. would be wise to stay away until quant managers finish the rebalancing that was forced on them by the day’s volatility, he said. The MSCI All-Country World Index slid 4.8 percent on Friday, its steepest selloff since 2011. The CBOE Volatility Index, a gauge of expected swings in U.S. shares, rocketed up 49 percent that day, the most since 2011. “Markets will likely be in a febrile state for weeks to come,” said Ray Attrill, global co-head of foreign exchange strategy at National Australia Bank Ltd. in Sydney. “I’m not sure that changes even when the political leadership vacuum in the U.K. is filled.” Commodities Traders flocked to haven assets Friday, with gold jumping almost 5 percent to its highest price in almost two years, while 10-year U.S. Treasury yields tumbled 19 basis points, their biggest one-day decline since 2009. Gold for immediate delivery gained another 1.1 percent Monday, set for its highest close since July 2014. West Texas Intermediate crude fell 0.6 percent to $47.34 a barrel after tumbling 4.9 percent on Friday, the worst loss since its February rout. “Everything is caught up in Brexit,” said Evan Lucas, a market strategist at IG Ltd. in Melbourne. "The oil fundamentals for the moment will be put to one side as markets try to figure out exactly how this will all work.” Bonds Treasuries led gains among government bonds, with 10-year yields extending Friday’s retreat by falling another seven basis points to 1.49 percent. Japanese debt due in a decade also climbed, sending their yield one basis point lower to minus 0.205 percent. “What we know is that there will be a lot of uncertainty, and uncertainty is not welcomed by the market,” supporting haven assets such as Treasuries, said Tomohisa Fujiki, chief rate strategist at BNP Paribas SA in Tokyo. “Our call for no rate hike this year or next is looking more and more likely.” By Emma O'Brien and Adam Haigh/Bloomberg

More from Business News