WORLD stocks headed for one the biggest slumps on record on Friday as a decision by Britain to leave the European Union triggered eight percent falls for Europe’s biggest bourses and a record plunge for sterling.
Such a body blow to global confidence could well prevent the Federal Reserve from raising interest rates as planned this year, and might even provoke a new round of emergency policy easing from all the major central banks.
Risk assets were scorched as investors fled to the traditional safe-harbors of top-rated government debt, Japanese yen and gold.
Billions were wiped from share values as Europe saw London’s FTSE .FTSE drop 6 percent in early deals, Germany’s .DAX and France’s CAC 40 .FCHI slump 7.5 and 9 percent and Italian and Spanish markets plunge more than 11 percent.
The rout was compounded by the fact markets had rallied on Thursday having become increasingly convinced that UK voters would opt to stay in the EU.
Britain’s big banks took a $130 billion battering with Lloyds (LLOY.L) and Barclays (BARC.L) plunging as much as 30 percent. EMINI S&P 500 futures ESc1 were down 4 percent and Japan’s Nikkei .N225 ended down 7.9 percent.
The British pound collapsed no less than 18 U.S. cents, easily the biggest fall in living memory, to hit its lowest since 1985. The euro in turn slid 3.2 percent to $1.1012 EUR= as investors feared for its very future.
Having campaigned to keep the country in the EU, British Prime Minister David Cameron confirmed he would step down.
Results showed a 51.9/48.1 percent split for leaving, setting the UK on an uncertain path and dealing the largest setback to European efforts to forge greater unity since World War Two.
Sterling sank a staggering 10 percent at one point and was last at $1.3582 GBP=, having carved out a range of $1.3228 to $1.5022. The fall was even larger than during the global financial crisis and the currency was moving two or three cents in the blink of an eye.
“It’s an extraordinary move for financial markets and also for democracy,” said co-head of portfolio investments of London-based currency specialist Millennium Global Richard Benson.
“The market is pricing interest rate cuts from the big central banks and we assume there will be a global liquidity add from them in the next few hours,” he added.
The shockwaves affected all asset classes and regions.
The safe-haven yen sprang higher to stand at 102.15 per dollar JPY=, having been as low as 106.81 at one stage. The dollar peak decline of 4 percent was the largest since 1998.
That prompted warnings from Japanese officials that excessive forex moves were undesirable. Indeed, traders were wary in case global central banks chose to step in to calm the volatility.
The Bank of England said it would take all necessary steps to shield Britain’s economy. A source told Reuters it was in touch with other major central banks. The Bank of Japan Governor Haruhiko Kuroda added his bank was also ready to provide liquidity if needed to ensure market stability.
Other currencies across Asia and in eastern Europe as it woke up suffered badly on worries that alarmed investors could pull funds out of emerging markets. Poland, where many of the eastern Europeans in Britain come from, saw its zloty PLN= slump 5 percent.
