Asian markets hammered as yen surges and pound sinks on fresh Brexit fears

An investor sits in front of a screen showing stock market movements at a securities firm in Fuyang, China.
An investor sits in front of a screen showing stock market movements at a securities firm in Fuyang, China. PHOTO: AFP

TOKYO (REUTERS) - Asian share markets turned tail on Wednesday (July 6) as fears over instability in the European Union returned with a vengeance, sending the pound to three-decade lows and hammering risky assets of all stripes.

In wild trading reminiscent of the fateful Friday when Britain voted to abandon the EU, sterling shed a full US cent in a matter of minutes to crater at US$1.2798.

Concerns that central banks might not be able to soften this latest blow to global growth hit oil prices hard. Having shed 5 per cent on Tuesday, Brent crude futures fell further to US$47.57, with US crude at US$46.21.

Spooked investors rushed into safe-haven sovereign debt and took markets deeper into unknown territory.

Yields on US Treasuries, the benchmark for bonds worldwide, hit record lows out to 30 years. Investors had to pay Japan 0.27 per cent to lend it money for 10 years.

"There's no inflation prospects, there's no strong growth. The only thing we have is uncertainty," said Hiroko Iwaki, senior bond strategist at Mizuho Securities.

The sudden mood swing saw Japan's Nikkei skid 3 per cent, while MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.7 per cent.

Financial markets in Singapore, Malaysia, India and Indonesia are closed for public holidays.

Since Britain's shock decision to exit the EU two weeks ago, investors have been consoling themselves with the expectation of yet more policy easing from major central banks.

Yet analysts, and many at the banks themselves, have warned that the scope for manoeuvre was strictly limited and any new steps could prove counter-productive.

"Financial markets appear to have taken a more realistic view around the complexity and uncertainty characterising the global political background and its impact on already lacklustre economic growth," wrote analysts at ANZ in a note. "This suggests the tug-a-war between more central bank support and economic fundamentals is going to increase, driving market volatility."

The pound was again a major casualty, cracking support at US$1.3000 and US$1.2950 to last stand at US$1.2867 in fast-moving trade. This was ground not visited since 1985 when it got as far as US$1.2565 - depths that could be revisited all too soon.

Against the yen, it fell below 131.00 for the first time since late 2012, while the euro scored a 2-1/2 year high around 85.00 pence.

The Japanese yen benefited broadly as a traditional safe harbour and climbed to 100.67 per US dollar. Likewise, spot gold hit its highest since early 2014 at US$1,371.40.

Perhaps taking advantage of the focus on sterling, Beijing allowed the yuan to fall to the lowest since late 2010 and gain a competitive advantage for its exports.

Dealers said there was no one event behind the manic moves, but rather an accumulation of negative factors.

Three British commercial property funds worth about £10 billion suspended trading as asset prices plunged, while the Bank of England had to take action to ensure local banks kept lending.

Across the channel, shares in Italy's banks tumbled, shaking the financial foundations of the euro zone's third-largest economy.

"Italy faces a severe crisis that is exponential. This is not gradual and not linear," said Francesco Galietti, head of the Policy Sonar risk consultancy and a former finance ministry official. "The immediate trigger is the banking crisis."