December 12, 2017
News Ticker

Global Stocks Tumble as Yen Soars Ahead of U.K. Vote

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Uncertainty over next week’s U.K. referendum on European Union membership sent stocks in Europe and Asia tumbling Monday, while the yen and government bond prices touched multiyear highs as investors continued to reach for assets perceived as safe.

The Stoxx Europe 600 shed 1.6% late morning, after losing close to 4% in the last three sessions.

Futures markets pointed to a 0.4% opening loss for the S&P 500, after stocks in Asia also fell sharply. Changes in futures don’t necessarily reflect market moves after the opening bell.

Opinion polls suggest a close-fought race with some recent surveys suggesting momentum was growing for the campaign to leave the EU, spurring concerns that a U.K. exit could trigger a period of uncertainty in financial markets and damage economic growth.

A poll published late Friday by ORB International put support for Britain leaving at 53%, against 47% for remaining—the survey excluded those who were undecided. The average of the past six polls puts each side on 50%, excluding voters who were undecided or didn’t know, according to NatCen Social Research, a nonpartisan social research agency, which has been tracking referendum polls.

Investors are concerned a U.K. exit could trigger a period of uncertainty in financial markets and damage economic growth in the region.

The European Union “is ultimately one of the more successful partnerships of all time—the thought of that changing is destabilizing,” said John DeClue, Chief Investment Officer at the Private Client Reserve at U.S. Bank.

“People would start extrapolating to what else can happen in Europe if other countries leave,” Mr. DeClue added.

Meanwhile, the Federal Reserve, Bank of Japan, and Bank of England all hold meetings this week, adding to market jitters that helped fuel a selloff in stocks and commodities that started late last week.
While investors are pricing in almost no chance of an interest-rate rise by the Fed on Wednesday, they will watch its economic projections and Chairwoman Janet Yellen’s press conference closely to see if higher rates are on the cards in the coming months. A more hawkish tone could ramp up expectations for a rate increase in July and boost the dollar, analysts say.

Earlier, Japanese stocks fell 3.5% as the yen surged to its highest levels against the euro and British pound since 2013. The yen tends to gain in times of market stress.

The dollar was last down 0.9% against the yen at ¥106.0280, while the euro was down 0.7% against the yen at ¥119.5100. The British pound was down as much as 1.7% against the yen at ¥149.8250, and 0.7% against the dollar at $1.4153, a two-month low.

 

While the pound has lost more than 4% against the dollar this year, the yen has gained 13.6%. The continued surge of the yen will raise expectations that the Japanese central bank could announce some additional monetary easing, according to strategists at Bank of Tokyo-Mitsubishi.

Elsewhere, stocks in Hong Kong fell 2.5%, while the Shanghai Composite fell 3.2% after data showed industrial production in China held steady in May, but investment growth missed expectations.

The International Monetary Fund warned over the weekend that soaring corporate debt could pose a potential systemic risk to China and the global economy. China’s corporate debt stands at approximately 145% of GDP, the lending agency said.

As investors sought assets perceived as safe, the 10-year Japanese government bond hit an all-time low yield of -0.160%, according to data from Tradeweb. 10-year German government bonds continued to inch closer to negative territory, yielding just 0.012%, while the yield on the 10-year U.S. Treasury note fell to as low as 1.613%, its lowest intraday level since Feb. 11, the same day the S&P 500 bottomed for the year. Yields move inversely to prices.

Gold rose 0.9% to $1,287.50 an ounce, building on two weeks of gains. “You can print as many dollars as you want, but you can’t print gold,” said Suzanne Hutchins, portfolio manager at Newton Investment Management, who currently holds an elevated exposure to gold in her multiasset portfolio.

“There is a lot of uncertainty, and valuations [on equities] are high,” Ms. Hutchins said, noting the positioning of her portfolio is as cautious as its ever been, including during the financial turbulence of 2008.

In other commodities, Brent crude oil fell 1% to trade at $50.05 a barrel after data on Friday showed further rises in U.S. drilling. Analysts are concerned that a steep rebound in the oil price in recent months could encourage producers to restart closed wells, exacerbating a global supply glut.

—Mark Magnier and Jason Douglas contributed to this article.

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