SINGAPORE (Bloomberg) - Risk aversion prevailed in markets, spurring another day of losses in Asian equities as mounting concern over the U.K.'s vote on European Union membership fueled anxiety ahead of central bank meetings in the United States and Japan. The pound fell with oil, while sovereign bonds rallied.
As stocks from Australia to Japan slipped, an MSCI gauge of regional equities fell for a fourth day, extending its longest slump in more than a month. The pound resumed losses as new polls indicated more Britons favour leaving the EU than want to remain. The yen strengthened against all 31 major peers and yields on 10-year government debt in Australia and Japan slid to records as haven assets attracted investors. US oil extended declines below US$49 (S$66.3) a barrel, while gold retreated from near a four-week high.
Gauges of expected price swings in global stocks are surging and institutions including the International Monetary Fund have warned of dire fallout if the United Kingdom becomes the first country to leave the EU after a June 23 referendum.
Monetary policy reviews by the Federal Reserve and Bank of Japan this week are adding to the potential for volatile moves in financial markets this week
"The market is trying to price in Brexit and as a result there's a flight to safety," said Mr Kelvin Tay, regional chief investment officer at UBS Group AG's wealth management business in Singapore.
"We're now moving into a crucial period before the vote itself. Things are just going to get volatile from here on."
The Federal Reserve begins a two-day policy meeting on Tuesday (June 14), with the futures market indicating zero chance of an interest-rate hike this month. The odds of a move by July have dropped to 16 per cent, from 53 per cent at the end of May.
About 28 per cent of 40 economists surveyed by Bloomberg predict the BOJ will expand its record monetary stimulus as soon as June 16, while 55 per cent forecast more easing on July 29.
US data on Tuesday are forecast to show retail sales advanced in May for a second month, indicating consumers are becoming less apprehensive about spending. Industrial output figures for the euro area are also due and the UK has inflation numbers coming.
The MSCI Asia Pacific Index fell 0.7 per cent as of 11.40am Tokyo time, contributing to a four-day loss of 4.4 per cent that marks its steepest slide since February. Australia's S&P/ASX 200 Index slid to levels last seen in April as trading resumed after a holiday on Monday, while Japan's Nikkei 225 Stock Average slid to a two-month low.
The Nikkei Stock Average Volatility Index climbed to its highest level on a closing basis since March after a similar measure for U.S. equity markets surged 23 per cent Monday, the most since Dec. 11.
"To survive and thrive as a trader we simply have to adjust to volatility," Mr Chris Weston, chief market strategist at IG Ltd. in Melbourne, said in an e-mail to clients. "The key consideration here is what happens if we do actually see a 'leave' vote and a sudden shock to markets. What have central banks got in the kitty this time around? The answer, of course, is significantly less than in prior cycles."
Futures on the UK's FTSE 100 Index lost 0.4 per cent, after the gauge lost more than 1 per cent in each of the last three trading sessions. S&P 500 contracts were little changed, after the US benchmark fell 0.8 per cent in the last session. US-listed stock of Baidu Inc., China's biggest Internet search engine, slid more than 5 per cent in after-market trading as the company cut its sales forecast.
Sterling weakened 0.5 per cent to to a two-month low versus the dollar. Four opinion polls from three separate companies have put the campaign for Britain to leave the EU in front of the "Remain" camp. The prospect of so-called Brexit actually coming to fruition rocked currency markets on Monday, with a measure of two-week implied volatility on the pound jumping to a record.
"Everything is about Brexit right now," said Mr Richard Falkenhall, a trading strategist at SEB AB in Stockholm. "Speculative accounts have added onto long dollars and long yen positions. At the same time people are adding to shorts in the pound and in the euro. 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."
The yen rose 0.2 per cent, approaching a one-month high. Against the euro, Japan's currency strengthened for a sixth day. The dollar reasserted itself against some higher-yielding currencies, with New Zealand's dollar falling 0.5 per cent. The Bloomberg Dollar Spot Index, a gauge of the greenback versus 10 major peers, was little changed for a second session.
Japan's 10-year bond yield fell to an unprecedented minus 0.17 per cent, while Australia's dropped to an all-time low of 2.05 per cent. Similar-maturity US Treasuries were little changed, after a five-day rally pushed their yield to the lowest since 2012.
The cost of insuring Asia corporate and sovereign bonds against non-payment rose for a fifth day, the longest run of increases in 10 months, according to prices from Westpac Banking Corp. and data provider CMA.
Commodities West Texas Intermediate crude sank 1.1 per cent to US$48.36 a barrel, falling for a fourth day ahead of data on US oil production and stockpiling. It reached US$51.67 last week, the highest since July 2015.
Gold declined 0.2 per cent, snapping a four-day rally in which it gained more than 3 per cent.