Brexit sends markets and pound into freefall, raises crisis fears

Rome (dpa) - The British pound took a nosedive, and Asian, European and US stock markets plunged on Friday amid predictions that Britain's plans to leave the European Union could destabilize the global economy.

Italy and Spain, fragile economies within the eurozone, were the worst affected: The main indexes of the bourses in Milan and Madrid closed their daily trade down by more than 12 per cent, a negative record.

In Paris, the CAC 40 index was also heavily affected, down by more than 8 per cent to 4,107 points, while the final loss for the DAX index at the Deutsche Boerse in Frankfurt was 6.8 per cent, to 9.557 points.

In an apparent paradox, Britain's London Stock Exchange suffered less damage. Its FTSE 100 index, which was losing 8 per cent in early morning trading, closed the day down by only 3.15 per cent, at 6,138 points.

However, the British pound plummeted early Friday to its lowest level since 1985, trading at 1.33 dollars. By 1600 GMT, it had bounced back above the 1.36-dollar mark, while it was down by more than 6 per cent against the euro at 1.226.

Economists expect further depreciation in the coming weeks and months.

Global stock and currency markets went into turmoil after rallying on Thursday on the back of misguided expectations, fuelled by betting agencies, that the Remain camp would win Britain's EU membership referendum.

Wall Street, the world's largest trading floor, ended the day with the Dow Jones Industrial Average falling 611.21 points, or 3.4 per cent, to close at 17,399.86; the Nasdaq Composite Index was down 202.06 points, or 4.12 per cent; and the S&P 500 lost 76.02 points, or 3.60 per cent.

The referendum results also hit Asian markets hard: Japan's benchmark Nikkei 225 Stock Average closed down 7.92 per cent after falling as much as 8.46 per cent, while China's benchmark Shanghai Composite Index closed down 1.3 per cent and Hong Kong's Hang Seng Index ended the day down 2.9 per cent.

Bank of England Governor Mark Carney said "some market and economic volatility can be expected" as Britain negotiates its EU exit, but his institution offered "more than 250 billion pounds of additional funds through its normal facilities" to soften the impact.

The European Central Bank and the G7 group of industrialized nations also moved to reassure markets.

"The European Central Bank (ECB) is closely monitoring financial markets and is in close contact with other central banks. The ECB stands ready to provide additional liquidity, if needed, in euro and foreign currencies," it said in a statement.

"G7 central banks have taken steps to ensure adequate liquidity and to support the functioning of markets," the group's central bankers and finance minister said after emergency talks. The G7 comprises the United States, Japan, Germany, France, Britain, Italy and Canada.

Analysts said markets were concerned about the uncertainty surrounding the so-called Brexit.

Daniel Vernazza, lead UK economist for Italy's UniCredit bank, said it was unclear whether London would continue to have unrestricted access to the EU's single market while it negotiates its walk out from the bloc.

"[Britain] could unilaterally move to limit immigration from the EU and ignore rulings from the European Court of Justice before a withdrawal agreement is made, but in response the EU would surely suspend access to the lucrative European single market," he wrote.

But Carney predicted there would be no immediate impact on Britons' lives.

"There will be no initial change in the way our people can travel, in the way our goods can move or the way our services can be sold," he said.

Denmark's Danske Bank said it expected Britain "to fall into recession" in the second half of the year, and the eurozone economy to follow suit, as a result of "falling investments due to higher uncertainty."

The global jitters linked to the Brexit could likely lead the US central bank, the Federal Reserve, to hold off on interest rate hikes for the rest of the year, Dutch bank ING's chief economist Rob Carnell wrote in a note.

In a statement, the US Federal Reserve said it was "carefully monitoring developments" and was "prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets."

The Institute of International Finance (IIF), a global representative of the financial industry, urged policymakers to swiftly redefine British-EU relations.

"The full extent of the financial market and economic impact from Brexit will not be clear for some time, but it is sure to be very disruptive in the short term and a drag on economic growth and employment in the longer term–especially for [Britain,]" IIF President and CEO Tim Adams said.

Last update: Fri, 24/06/2016 - 22:54

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