Asian stocks sink with pound as Brexit jitters boost yen, bonds; STI down 1.4%

Pedestrians walk past the Nikkei key index of the Tokyo Stock Exchange in Tokyo on June 10.
Pedestrians walk past the Nikkei key index of the Tokyo Stock Exchange in Tokyo on June 10. PHOTO: AFP

WELLINGTON, TOKYO (BLOOMBERG) - Asian stocks tumbled by the most in two months and the pound sank to an eight-week low on Monday (June 13) amid growing anxiety the UK will vote to leave the European Union. Japanese government bonds rallied with US Treasuries as investors favored the safest assets.

Optimism has given way to fear in global financial markets ahead of monetary policy reviews in the US and Japan this week, and the UK's June 23 referendum on EU membership. Polls suggest the result of the vote is too close to call and economists predict the pound will either sink to the lowest level in more than three decades or climb toward the highest this year depending on the outcome.

The MSCI Asia Pacific Index sank 1.7 per cent as of 11:40 am Tokyo time. Benchmark stock gauges in Hong Kong, Singapore and South Korea tumbled by the most since February, while Japan's Topix index slipped to a two-month low.

The Straits Times Index was down 1.41 per cent at 2,783.11 as of 11:43 am.

Futures on the S&P 500 declined 0.3 per cent, following a 0.9 per cent slump in the US benchmark last session, its steepest drop since May 17.

The pound dropped as much as 0.7 per cent to US$1.4159. It slumped 1.4 per cent on Friday after an Orb/Independent newspaper poll showed 55 percent support for the "Leave" campaign, and 45 per cent for "Remain."

"The market hates uncertainty," said Yoshinori Ogawa, a markets strategist at Okasan Securities Co. in Tokyo. "Most market participants think that the UK will probably remain, but we're seeing some poll results that show those who'll vote to leave outnumber the 'Remain' camp."

Chinese data released Monday added to evidence that the world's second-largest economy is stabilizing. Industrial production rose 6 per cent from a year earlier in May, matching economists' estimates, and retail sales climbed 10 per cent. Investors start counting down to Wednesday's post-meeting statement from the Federal Reserve and Thursday's policy review from the Bank of Japan. Most economists expect the latter to expand record monetary stimulus by July, a Bloomberg survey shows.

Surveys at the weekend were less stark, with an online poll by Opinium for the Observer newspaper showing 44 per cent support for Britain staying in the EU and 42 per cent 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.

The yen strengthened versus all 16 major peers. 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 majority of economists surveyed by Bloomberg expect the central bank to remain on hold on Thursday.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was steady after rising 1.1 percent over the previous two sessions. Odds of an increase in U.S. key rates don't exceed 50 per cent before December, according to Fed funds futures tracked by Bloomberg. There is zero chance of a move this week, the data show.

The currencies of Malaysia, South Korea and Taiwan all weakened at least 0.6 per cent, leading declines in Asia.

US Treasuries due in a decade advanced for a fifth day, pushing their yielddown by two basis points to 1.62 per cent, set for the lowest close since December 2012.

"Everyone is hiding in Treasuries," Tom di Galoma, managing director of government trading and strategy at investment bank Seaport Global Holdings in New York, said on Friday. Anticipation of the Fed policy meeting next week was helping to push yields lower, he said, "but Brexit is far more important."

Japan's 10-year yield dropped to a record of minus 0.165 per cent, while Taiwan's fell to an unprecedented 0.76 per cent.

Gold for immediate delivery traded at US$1,273.80 an ounce and earlier touched US$1,278.50, the highest since May 18. A Brexit vote on June 23 could propel prices to US$1,400, analysts at Capital Economics Ltd. said in a report on Friday.

West Texas Intermediate crude fell 1.3 per cent to US$48.45 a barrel after Baker Hughes data out on Friday showed that rigs targeting crude in the US rose by three to 328 last week, capping the longest run of weekly gains since August.