(Reuters) World stocks tumbled and European bank shares were on track for their biggest ever two-day fall on Monday as the political and economic fallout of Britain’s shock vote to leave the European Union drove sterling to a fresh 31-year low against the dollar.
Faced with a second day of turmoil after Thursday’s referendum, which most in markets had thought would deliver a vote in favor of staying in the EU, investors sought safe havens such as the yen, gold and core government debt.
But moves were not as extreme as on Friday when stocks fell by their most in almost five years.
British finance minister George Osborne sought to reassure markets, saying the world’s fifth-largest economy was strong enough to cope with the Brexit-inspired volatility, but the positive impact on sterling was only fleeting.
“This Brexit decision has taken the markets by total surprise. I would remain on the sidelines – no reason to step in yet,” said Hampstead Capital hedge fund manager Lex Van Dam.
Markets bet on a further cut in Bank of England interest rates, almost fully pricing in a 25 basis point cut by the end of the year in another blow to sterling and to banks already facing reduced earnings as a result of Britain leaving the EU.
An index of European bank shares .SX7P fell 7.3 percent, taking losses in the last two trading days to around 20 percent. Royal Bank of Scotland shares (RBS.L) fell 24 percent while Barclays (BARC.L) shed 18 percent.
Italian banks also suffered. UniCredit (CRDI.MI) fell 7.4 percent. The government was looking at options to help its banks and prevent further share price falls.
The pan-European FTSEurofirst 300 stocks index .FTEU3, which fell 7 percent on Friday in its biggest plunge in nearly eight years, lost a further 2.5 percent on Monday.
Britain’s FTSE 100 index .FTSE ebbed a further 1.5 percent on Monday and Germany’s DAX .GDAXI lost 1.8 percent.
Spain’s IBEX index .IBEX initially rose after acting Prime Minister Mariano Rajoy’s People’s Party fared better than expected in weekend elections but the gains melted away and the index was last down a modest 0.5 percent.
World stocks measured by MSCI .MIWD00000PUS hit their lowest level since March. U.S. index futures ESc1 1YMc1 were down 0.6 percent, indicating Wall Street would open lower.
Sterling fell 3.7 percent to as weak as $1.3192, surpassing its Friday low as yields on 10-year British government debt fell below 1 percent for the first time GB10YT=RR.
It fell 2.5 percent to 83.33 pence against the euro EURGBP= and 3.8 percent to 134.12.10 yen GBPJPY=.
“Uncertainty equals currency weakness, we know this, and there is no sense that this (sterling) is a value trade right now and that you have to get back in. It is too early for anyone to start calling a bottom,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London.
The euro EUR=, also considered vulnerable to the exit from the EU of its second-largest economy, fell nearly 1 percent to $1.1016, off a low of $1.0980. The yen strengthened to as high as 101.43 per dollar per dollar JPY=.
Government officials stepped up warnings that they could intervene in currency market to stabilize the yen, whose strength harms exporters.
This helped Japan’s Nikkei 225 .N225 share index, which closed 2.4 percent higher. MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.4 percent. Companies with UK exposure in particular came under pressure.
Yields on core government debt fell again. German 10-year bond yields DE10YT=TWEB, the benchmark for euro zone borrowing costs, fell as low as minus 0.1 percent but held above Friday’s record low of almost minus 0.17 percent.
Spanish 10-year bonds ES10YT=TWEB outperformed those of other lower-rated southern euro zone countries. Their yields were down 17 bps at 1.47 percent after Sunday’s election.
U.S. Treasury yields also fell. The 10-year note US10YT=RR fell more than 10 bps to as low as 1.46 percent, still above Friday’s low of 1.41 percent.
Gold XAU=, which saw its biggest rise since 2009 on Friday, stood at $1,329 an ounce, up 1.1 percent on the day.
Brent crude oil LCOc1 was higher in Asian trade on a view that Brexit would have minimal impact on global oil demand. But, by midday in London, it was down 18 cents at $48.23 a barrel.
Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, June 24, 2016 after Britain voted to leave the European Union in the EU BREXIT referendum. REUTERS/Ralph Orlowski
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