Brexit risk jolts markets as stocks slide with pound; yen climbs

BLOOMBERG

Growing anxiety over the prospect of the U.K. exiting the European Union dominated financial markets, sending global stocks down for a third day and the British pound to an eight-week low while boosting demand for havens such as the yen and gold.
In Europe, equities headed for the lowest close since February and the pound weakened against most of its major peers after polls showed the outcome of a referendum on whether Britain will stay in the EU was too close to call. The yen rose toward its strongest level since 2014, while the cost of insuring corporate debt against default increased to the highest in more than two months. Oil retreated after a report showed a jump in U.S. drilling rigs.
Financial markets have slumped since the middle of last week as investors braced for a series of key events this month including the U.K.’s June 23 referendum on EU membership. After a poll on Friday showed a 10 percentage-point lead for the leave campaign, surveys released over the weekend indicated the pro-EU camp and those supporting an exit were neck and neck. Monetary policy reviews this week will be scrutinized for clues on the timing of U.S. interest-rate increases and potential expansion in the Bank of Japan’s record stimulus.
“Everything is about Brexit right now,” said Richard Falkenhall, a trading strategist at SEB AB in Stockholm. “When you watch the polls they’re tighter than they’ve ever been. So there is a lot of uncertainty out there at this point.”

Stocks
The Stoxx Europe 600 Index dropped 1.6 percent at 8:35 a.m. in New York, led lower by banks. G4S Plc declined 5.3 percent after confirming that the man suspected of killing 50 people and wounding 53 others in a mass shooting Sunday in Florida was an employee since 2007.
Futures on the S&P 500 fell 0.3 percent, indicating U.S. equities will extend declines after Friday dropping the most in three weeks amid concern over tepid growth and potential further market turbulence. Japan’s Topix slumped 3.5 percent.
The MSCI Emerging Markets Index slid 1.7 percent, down 3.8 percent in three days.
That’s the biggest one-day loss in a month and for a three-day period in five months. Equity benchmarks lost at least 1.5 percent in South Korea, Turkey and Taiwan. Russian markets were closed for a holiday.
The Shanghai Composite Index lost 3.2 percent as trading resumed following holidays and the Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong fell 2.4 percent, down 4.5 percent over two days. Stocks fell even as Chinese data released on Monday added to evidence that the world’s second-largest economy is stabilizing.

Currencies
The pound dropped as much as 1 percent to $1.4116. 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.” Over the weekend, an online poll by Opinium for the Observer newspaper showed 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. While the odds of an exit are rising, the probability of staying in is still more than 65 percent, according to Number Cruncher Politics and Oddschecker.
The yen strengthened versus 16 major counterparts, advancing 0.8 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, was little changed 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 MSCI Emerging Markets Currency Index declined 0.4 percent and has lost 1 percent over three days, the longest run of losses in a month. South Korea’s won led declines, weakening 0.7 percent followed by Taiwan’s dollar, down 0.6 percent.
Bitcoins jumped as much as 21 percent from Friday’s closing level to $698.995, 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 the yield down one basis points to 1.63 percent. The yield on similar-maturity Japanese debt dropped as low as minus 0.165 percent on Monday, while the U.K.’s fell to 1.22 percent.
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 little changed on Monday.
The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies rose to a nine-week high, climbing three basis points to 80 basis points. A measure of swaps on junk-rated corporate issuers surged 13 basis points to 344 basis points, the highest since March 10.

Commodities
Gold for immediate delivery rose as much as 1 percent to $1,286.80 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 1.3 percent to $48.44 a barrel after Baker Hughes Inc. data 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. Iran is seeking to boost output by 600,000 to 700,000 barrels a day over five years from fields in an area west of the Karoun River along the Iraqi border, Oil Minister Bijan Namdar Zanganeh said.