Brexit: 'Black Friday' for financial markets sparked by EU referendum vote

Earliest and most violent response seen in the foreign exchange forums as sterling sinks to $1.35 against the dollar - lows not witnessed since 1985

A trader from BGC, a global brokerage company in London, reacts during trading 24 June, 2016 after Britain voted to leave the European Union (Reuters)

Financial markets have been engulfed in what some described as a “Black Friday” as traders around the world responded with fear, at times shading into outright panic, over the economic consequences of Britain’s exit from the European Union.

The Bank of England governor, Mark Carney, pledged liquidity to UK financial institutions – a move echoed by the European Central Bank. The G7 and the International Monetary Fund also sought to restore calm to febrile markets by releasing statements pledging readiness and official co-operation in the face of a wave of market selling.

The earliest and most violent response was seen in the foreign exchange forums where sterling sank to $1.35 against the dollar, lows not witnessed since 1985 as financiers, trading through the night of the count, sold the pound heavily when it became apparent Leave was heading to a massively unexpectedly victory.

The 10 per cent swing in the value of sterling overnight – which had been sent as high as $1.5 on early reports of a Remain lead in polls – was the biggest intra-day move on record, even outstripping moves in the 2008 global financial crisis and Black Wednesday in 1992 when the UK crashed out of the European Exchange Rate Mechanism.

When the FTSE 100 opened at 8am, it duly experienced one of its biggest opening slumps since the financial crisis, with shares plummeting instantly by 8 per cent and wiping more than £120bn off the value of blue-chip London-listed shares. The FTSE 250, made up of smaller stocks, had its worst opening on record, with the index sinking by 11.4 per cent.

Credit ratings agency Moody's downgraded the UK Government's bond rating from stable to negative in light of Britain's decision to leave the European Union.

“This is a Black Friday for stockmarkets” said Lee Wild of the stockbroker Interactive Investor and the sentiment was echoed in numerous dealing rooms across the City of London.

“This is simply unprecedented, the pound has fallen off a cliff and the FTSE is now following suit” said Dennis de Jong of UFX.com.

The blood-letting was also to be found in other European exchanges, with the Italian and Spanish stock markets plunging around 12.5 per cent lower. The German and French stock exchanges ended down 6.8 and 8 per cent respectively.

US stocks also opened sharply down later in the afternoon. The Japanese stock market, the Nikkei, had earlier slumped almost 7 per cent on the Brexit news, with the sheer volume of sell orders triggering automatic circuit breakers.

In the UK, banks and property companies were the biggest losers. House builder Taylor Wimpey lost 29 per cent. Lloyds dropped by 20 per cent and the majority taxpayer owned Royal Bank of Scotland shed 20 per cent of its value.

Meanwhile, traditional safe haven assets from gold, to government bonds all saw a significant jump in value as traders, in the grip of a massive bout of risk aversion, piled in.

The yield on 10 year UK government Gilts, which move inversely to price, was driven down to just over 1 per cent and futures markets signalled that traders now pricing in a cut in interest rates by the Bank of England from what is already a historic low of 0.5 per cent.

There was something of a recovery in several markets later in the afternoon and the FTSE 100 finally closed down just 3.15 per cent at 6138.69. But the domestic facing FTSE 250 Index of share closed 7.72 per cent lower.

But analysts cautioned there was plenty of scope for further falls and dislocations as the details UK’s divorce from the EU are hashed out over the coming months and years.

“Only time will tell if this has been a spectacular buying opportunity, or the first act in a new and volatile bear market” said Chris Beauchamp of IG.

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