Britain’s shock vote to pull out of the European Union wiped $2.1 trillion from global equity markets on Friday as traders panicked in the face of a new threat to the global economy.
Investors fled to the safety of gold, the yen and blue-chip bonds as the seismic shift in the structure of Europe left many huge questions hanging, including who will lead Britain following the resignation of Prime Minister David Cameron.
The Brexit vote sparked eight per cent losses in the Tokyo and Paris bourses, nearly seven per cent in Frankfurt and more than three per cent in London and New York.
Central banks stepped in to bolster confidence, promising to inject liquidity where needed and appearing to mitigate some of the sharpest losses.
Still, the pound crashed 10 per cent to a 31-year low at one point, before rebounding slightly for a 9.1 per cent loss against the greenback in late trade.
The euro also plummeted, dropping 2.6 per cent on the dollar.
Benefitting from a massive safety selloff, gold jumped nearly five per cent and the yen surged 4.2 per cent against the dollar and 7.0 per cent on the euro. The dollar at one point fell below 100 yen for the first time since November 2013.
US 10-year treasury bond yields hit their lowest since 2012 at 1.42 per cent before edging higher, while the German 10-year bund fell into negative territory for the second time in history.
Analysts say the split of Britain with the EU could slow trade and investment in the country and hit its key financial industry, possibly pushing the economy into recession.
“The vote is creating a tremendous amount of uncertainty. Uncertainty often freezes expansion decisions… it means that the global economy will grow more slowly,” said James Chessen, chief economist at the American Bankers Association.
The extent of the market damage across Asia, Europe and the Americas attested to how wrong investors were to bid up prices ahead of the referendum, convinced Britons would vote to remain part of the 28-nation European Union.
“This was really an event that caught most global investors flat-footed,” said Jack Ablin, chief investment officer at BMO Private Bank.
“It is clear that the broader markets went into this critical vote with too much comfort,” echoed George Goncalves of Nomura Securities.
The losses were of a magnitude unseen since the dark days of the global economic crisis.
In all $2.1 trillion in value was wiped off of equities worldwide, according to S&P Dow Jones Indices.
London’s benchmark FTSE 100 index plummeted 7.5 per cent at the open, but recovered partially after British Prime Minister David Cameron said he would step down and central banks pledged support.
“The liquidity support promised by the Bank of England — and subsequently the ECB and Federal Reserve — appears to have been the main catalyst for the turnaround,” said Spreadex analyst Connor Campbell.
The Dow Jones Industrial Average registered its largest single-day point fall since 2011, losing 610 points.
Milan slumped 12.5 per cent, and Madrid lost 12.4 per cent on jitters ahead of Spanish elections on Sunday.
With London’s claim to the world’s leading finance center on the line with the EU divorce, banks were heavily sold Friday. Many global banks say they expect to relocate staff to elsewhere in the European Union in anticipation of the breakup.
Among top European banks, Lloyds lost 21 per cent and Societe Generale plunged 20 percent, while losses at others ran 14-18 per cent.
In New York, Citigroup, JPMorgan Chase, Morgan Stanley and Goldman Sachs all lost between seven and 10 per cent.
The travel industry was also battered by worries that the Britain-EU divorce will hit business. Hotels, travel agencies and airlines all fell sharply, with Air France down 10.0 per cent, Lufthansa 9.2 per cent and American Airlines 10.8 per cent.
Key figures around 2100 GMT
London – FTSE 100: DOWN 3.2 per cent at 6,138.69 (close)
Frankfurt – DAX 30: DOWN 6.8 per cent at 9,557.16 (close)
Paris – CAC 40: DOWN 8.0 per cent at 4,106.73 (close)
EuroStoxx 50: DOWN 8.6 per cent at 2,776.09 (close)
New York – DOW: DOWN 3.4 per cent at 17,400.75 (close)
New York – S&P 500: DOWN 3.6 per cent at 2,037.41 (close)
New York – Nasdaq: DOWN 4.1 per cent at 4,707.98 (close)
Tokyo – Nikkei 225: DOWN 7.9 per cent at 14,952.02 (close)
Shanghai – Composite: DOWN 1.3 per cent at 2,854.29 (close)
Hong Kong – Hang Seng: DOWN 2.9 per cent at 20,259.13 (close)
Pound/dollar: DOWN at $1.3670 from $1.4974 late Thursday
Euro/dollar: DOWN at $1.1112 from $1.1422
Dollar/yen: DOWN at 102.21 yen from 106.53 yen