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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Brexit fears wipe £100bn off FTSE 100 in four days - business live

The City of London.
The City of London. Photograph: Bloomberg/Bloomberg via Getty Images

Brexit panic sends London shares sliding

Britain’s stock market has hit a new three-month low as Brexit worries sweep through the City.

The blue-chip FTSE 100 index has closed down 121 points at 5923, its lowest level since late February, and its fourth day of heavy falls. That wipes around £30bn off its value.

The Footsie has now shed 378 points since the start of trading on Thursday, when Brexit fears began to mount.

That means a staggering £98bn has been wiped off the value of Britain’s biggest companies in four trading days.

Sterling is also languishing at two-month lows; the pound has lost 1.1% against the US dollar to $1.4108 at pixel time.

The TNS poll, showing a seven-point lead for the Leave campaign, sent shares down heavily in late trading.

Mining shares are among the top fallers, reflecting fears about the global economy.

Housebuilders such as Taylor Wimpey and Barratt Development also suffered falls; they would be hit by a decline in the UK housing market if the Bank of England raised interest rates to prop up sterling.

The FTSE 100 tonight
The FTSE 100 tonight Photograph: Thomson Reuters

The prospect of Britain voting to leave the EU next week also sparked big losses across Europe, sending markets to three-month lows.

  • German DAX: down 1.5%
  • French CAC: down 2.3%
  • Spanish IBEX: down 1.9%

Joshua Mahony, market analyst at IG, says fear is gripping the markets - driving money into save-havens such as German bonds.

Yet another day in the red for European markets has seen fears surrounding a potential Brexit continue to restrain risk appetite. The flight to safety is clearly evident in the foreign exchange markets, with money moving out of European currencies and into distant havens such as the yen and dollar.

With the news that Germany has joined the negative 10-year club, it is clear that investors are looking for a shelter from the storm that is moving in over the next two weeks.

Yet another EU referendum poll has hammered home the increasing threat of a Brexit next week, with the TNS poll coming out heavily in favour of the UK leaving the EU today. What initially looked like an anomaly, has turned into the norm, with 8 of the last 10 polls coming out in favour of a Brexit.

And on that note, I’m wrapping up for day. Our politics liveblog has full action from the Referendum campaign.

Thanks for reading and commenting. GW

Updated

Philip Green attending the Richard Desmond book launch party at the Claridges hotel ballroom on June 15, 2015.

In other news, retail magnate Sir Philip Green has just announced that he will attend a parliamentary hearing tomorrow on the collapse of BHS.

Green had threatened not to appear unless Frank Field, the chairman of the work and pensions committee, stepped down, and accused Field of trying to destroy his reputation.

Now, though, Green has decided to give his side of the story.

He’ll have to explain why he sold BHS for £1 to a man with no retail experience, how much he took out of the company during his ownership, and how he plans to help fix its pension black hole.

Kick-off 9.15am sharp!

The Brexit referendum has come at a tricky time for the global economy.

Investors have been fretting for months about China’s slowing economy, while the eurozone’s weak recovery has been an ongoing sore.

So the prospect of Europe being thrown into political crisis has “added fuel to the fire” for nervous investors, says Jasper Lawler of CMC Markets.

Markets are already worried about slowing global growth and the inability of central bank policy to stem the decline. The June 23 EU referendum gives a specific date when all the market’s troubles could come to a head.

Stocks and the British pound are being shunned in favour of havens like German and British bonds, the yields of which have struck new record lows. Expectations of weak global growth and ever-enduring easy monetary policy, likely to be reinforced at central bank meeting this week, is seeing a mass exit from equities and feeding demand for bonds, sending yields to record lows.

The London stock market has now suffer four days of steady losses, as the City has become steadily consumed by the looming EU vote.

The FTSE 100 over the last six months
The FTSE 100 over the last six months Photograph: Thomson Reuters

Mihir Kapadia, CEO at Sun Global Investments, says the markets are being hit hard by Brexit uncertainty.

‘’The risk of a potential ‘Brexit’ is dominating global markets today as we enter the home straight towards the influential EU referendum vote on 23 June.

Investors seem to have suddenly woken up to Brexit risk and have become nervous....

The London stock market has hit a new three-month low as it staggers towards the close with fresh losses.

The FTSE 100 index of blue-chip shares just fell as low as 5944 points, a loss of 101 points today.

Almost every share has lost ground. Mining group Anglo American is the worst performer, down 4.6%.

Ouch. The pound just slipped below $1.41 for the first time in two months.

The TNS poll, showed Leave holding a 7-point lead, is clearly weighting on the markets.

Investors haven’t been this worried about a sterling crisis since the aftermath of Lehman Brothers’ collapse:

Pound hit after TNS gives Leave a 7% lead

The pound just took another knock, after the TNS polling company reported that the Leave campaign have a “significant lead” in the run-up to the EU referendum.

TNS says that Leave is on 47% of the vote, with Remain trailing at 40% (with 13% of voters still undecided).

And sterling is now down one and a half cents, or 1%, at $1.411 - its lowest point of the day.

ECB and Bank of England to backstop markets after Brexit vote

Insiders at the European Central Bank have revealed they would publicly pledge to backstop financial markets, in partnership with the Bank of England, should Britain vote to leave the European Union.

It’s a clear signal that central bankers are preparing for Britain to shock the global markets and vote for Brexit.

Reuters has the story. Here’s a flavour:

The preparations illustrate the heightened state of alert ahead of the June 23 referendum, which will help determine Britain’s future in trade and world affairs and also shape the EU. The pound and euro have lost value on fears a Brexit could tip the 28-member bloc into recession.

Such an announcement from the ECB would come on June 24 if an early-morning result showed that British voters had chosen to leave the EU, according to the sources. The aim is to underpin investor confidence across Europe and contain further market jitters.

“There will be a statement to do whatever it takes to maintain adequate market liquidity,” said one senior central bank official, who spoke on condition of anonymity.

The ECB’s pledge would involve opening so-called swap lines with the Bank of England, allowing euros and sterling to be exchanged and effectively making unlimited funding in both currencies available to European banks, the sources said.

Here’s the full story:

Exclusive: ECB would pledge to backstop markets after a Brexit - sources

A Wall Street street sign.

The US stock market has opened calmly, bring some order to proceedings after a volatile European session.

The Dow Jones industrial average has dipped by 0.1%, or 15 points, while the Nasdaq index of tech stocks is up 0.2%.

Investors may be keen to sit sight until the UK’s referendum has been cleared up; and few believe the Federal Reserve could raise interest rates at this week’s two-day meeting (which finishes tomorrow).

Christopher Vecchio, currency analyst at DailyFX, says:

With all the attention on the Brexit, the central bank meetings this week have seemed to take a back seat. This makes sense, though. If the Fed hikes, and there is a Brexit? The Fed will have to backtrack, which will cost them credibility

Pro-Brexit economist Dr Gerard Lyons has written a piece for us, arguing that UK manufacturing could thrive outside the EU.

Here’s a flavour:

In the future we can craft policy to suit domestic needs, not least the possibility of an industrial policy if we wanted it.

We could directly help sectors. The US, never accused of not being free market, directly targets help to strategic sectors, like autos. So too could we if we wished. EU state aid rules prevent the ability to selectively help areas or sectors. Add in the need to abide by EU regional development criteria, and our hands are tied on regional policy too.

More here:

Our economics editor, Larry Elliott, says the Bank of England will be delighted that UK inflation remained at 0.3% last month.

He explains:

For the Bank of England, lower than expected inflation is a double bonus. On the one hand, it increases the spending power of households and so boosts growth. On the other, it provides greater wriggle room before the government’s 2% inflation target comes under serious threat.

With the referendum making the outlook so uncertain, the extra leeway will be extremely welcome in Threadneedle Street.

Here’s Larry’s analysis:

Here comes the US retail sales figures for May....

...and they’ve beaten expectations, with sales growing by 0.5% during the month.

That suggests American consumers are continuing to spend, and haven’t been spooked by the latest twists in the race to succeed president Obama, or by the Brexit campaign.

However.... it’s partly due to more expensive gasoline; fuel spending jumped by 2.1%, reflecting higher price at the pumps

The boss of French insurance group Axa has gone public with his concerns about next week’s referendum.

Axa CEO Henri de Castries told a conference in Paris that the chances of Brexit are now “extremely high”. It would leave investors strugging to navigate “a true landscape of uncertainties”, he warned.

De Castries added that the future is uncertain, even if Britain votes to stay in the EU (via Bloomberg):

“If they remain, the situation isn’t simple either, and this is underestimated by lots of people.”

Stresses in the financial markets have jumped to their highest level since late February:

Times City hack Simon English highlights how the mood has changed:

UK borrowing costs keep falling

Britain’s borrowing costs are also hitting fresh all-time lows today.

The yield on UK 10-year gilts has slid to just 1.15% – which is the lowest borrowing rate on record.

That’s a sharp fall from the 1.21% yield yesterday. [yields, or interest rates, fall when the price of a bond rises]

At the start of 2015, Britain was paying 2% to borrow for a decade.

Leave campaigner Douglas Carswell claims that this shows that investors are relaxed about the prospect of Britain quitting the EU....

However, falling bond yields is usually a sign that the City is worried – buying bonds as a way of protecting their cash.

David Miller, investment director at fund manager Quilter Cheviot, says the markets are worried about the referendum , rather than “looking good”....

Markets are in a strange state. Gilt yields are lower than any time since records began in 1729 and companies are issuing huge amounts of corporate debt in order to take advantage of low interest rates. Short term traders and long term investors are on the sidelines waiting for the referendum result.

Referendum uncertainty is damaging confidence and there is evidence of a slowdown in economic activity. Markets and social media amplify the daily headlines created by the politicians.

Brexit panic drives London stock market to three-month lows

London’s stock market is plumbing new lows as traders continue to quake in the shadow of the EU vote.

The FTSE 100 has shed 77 points, or 1.3%, to 5967 – falling through the 6,000 point mark for the first time since late February.

The FTSE 100 over the last six months
The FTSE 100 over the last six months Photograph: FTSE 100

Mike van Dulken of Accendo Markets says stock market bulls are racing to the exits, before the UK makes its own exit decision:

“Equity indices are extending their losses, fearful of a now heightened prospect that the UK votes to leave the European Union, worsening an already fragile global growth situation by delivering an economic and political blow to a struggling Eurozone.

And Chris Beauchamp of IG says traders are reacting to the latest polls, and the Sun newspaper’s decision to back the Leave campaign.

Panic appears to be gripping markets as the headlines fill up with references to a possible Brexit, with the Sun’s declaration for Brexit emblematic of the worry that the Remain campaign has lost a crucial segment of the population....

The move in the polls has been matched by a noticeable shift in the IG Brexit binary, with clients now thinking that the chance of the UK voting to leave has now hit 40.5%, up from the low 30s yesterday.

A Brexit isn’t fully priced in, though, Beauchamp adds:

What is interesting is, despite the sharp selloff in sterling in recent days, the pound is still holding on above $1.41.. Either this is a symptom of limited volumes as traders abandon the field, or a sign that the market still thinks the status quo will win out in the end.

European stock markets are also deep in the red.

France’s CAC is down 1.2%, while the German DAX is down 0.7%, as traders continue to dump shares and buy bonds (which is why German 10-year bond yields are now negative)

This chart shows why Brexit would have such an impact on the European political landscape:

Updated

Bank of England pumps £2.5bn into City to fight Brexit fears

Breaking: The Bank of England had allocated almost £2.5bn of cash to City firms to help them handle any Brexit-related panic.

This is the result of the first special liquidity operation run by the BoE, ahead of next week’s EU referendum.

The auction was designed to prevent the money markets running dry, if panic broke out over the referendum. Banks can swap assets for ready cash, and only have to repay the funds in six months.

But the take-up is actually quite modest, and the lowest for any such market operation since February. Last week, for example, firms took around £3.2bn of liquidity via a regular operation.

Reuters has the details:

  • BANK OF ENGLAND SAYS ALLOTS €2.455BN IN PRE-REFERENDUM INDEXED LONG-TERM REPO
  • BANK OF ENGLAND REPO RESULTS SHOW BIDS RECEIVED FROM BANKS AND FUNDS ALLOTTED LOWEST SINCE FEB 2016

So, this suggests the City is still operating as normal, despite the recent tumble in the pound and in share prices.

Here’s some instant reaction, from Sky News’s Ed Conway:

And from private equity firm Pegasus:

Updated

The inflation report didn’t have much impact on the pound, which is still down around 1% against the US dollar.

Joshua Raymond of City broker XTB.com says next week’s EU referendum is still dominating the markets.

May’s inflation reading is unlikely to have any impact at the Bank of England, who remain expected to keep interest rates on hold for the remainder of the year.

As such, the reaction to this data in the pound was minimal, and the main driver for pound buyers or sellers right now continues to be the uncertainty over a potential Brexit, with the latest polls showing a strengthening in popularity for the leave camp.

With inflation this low, there’s no chance that the Bank of England will raise interest rates when policymakers meet on Thursday.

Ian Stewart, chief economist at Deloitte, reckons borrowing costs will remain extremely low for many months:

“Inflation is up from its all-time lows but is still way too low.

The fight against low inflation continues. The era of ultra-low interest rates has much further to run.

UK inflation over the last decade
UK inflation over the last decade Photograph: ONS

Maike Currie, investment director for personal investing at Fidelity International, has summed up today’s inflation data:

“After falling to 0.3% in April, inflation remains unchanged in May, below the 15-month peak of 0.5% recorded in March this year. Rising oil prices pushing up the cost of filling up your petrol tank coupled with eating out at restaurants and the price of smartphone services were the main upward drivers.

This was offset by falls in clothing and food prices. Since the beginning of the year, the pound has been markedly weaker, which is also likely to have pushed up prices.

UK house price inflation cools

UK house price inflation has also slowed down, perhaps reflecting economic uncertainty ahead of the EU referendum.

The ONS reports that the cost of average house rose by 8.2% annually in April, down from 8.5% in March.

Prices rose fastest in London (+14.5%) and the East of England (13.6%), but only rose by 0.1% in the North East.

And there are some stark regional differences, with the Welsh town of Merthyr Tydfil suffering the biggest fall in house prices.

The inflation report also shows that UK consumers have been hit by the recent recovery in the oil price.

Transport costs climbed 0.9% in May, partly due to a 3p rise in a litre of diesel. Rising sea fares also had an upward impact, picking up slightly in 2016 after falling a year ago.

Why UK inflation stayed low

Clothing and footwear prices fell by 0.2% between April and May this year, helping to keep the cost of living low.

The downward contribution came from a variety of clothing but particularly children’s outerwear.

Food and non-alcoholic beverage prices fell by 0.4% between April and May 2016.

The downward contribution came from a variety of food product groups, most notably vegetables and confectionery.

Recreation and culture prices, fell by 0.4%:

The downward contribution came mainly from games, toys and hobbies (particularly computer games) with prices falling between April and May 2016 compared with a rise last year.

UK inflation, the details
UK inflation, the details Photograph: ONS

At just 0.3%, Britain’s inflation rate remains stubbornly low below the Bank of England’s 2% target.

UK inflation holds steady at 0.3%.

Breaking: The UK inflation rate remained at 0.3% in May, below the 0.4% expected by the City.

That matches April’s reading for the consumer prices index.

The Office for National Statistics says the clothing and footwear, recreation and culture and food and beverages had the largest downward pressure on the inflation rate.

Transport, restaurants and hotels and communication services had the largest upward pressures.

More details and reaction to follow...

The deputy chief of the International Monetary Fund has warned that Brexit would damage trade and hurt the global economy.

David Lipton, first deputy managing director of the IMF, told a press conference in Beijing that the referendum comes at a difficult time for the world economy.

“It’s very hard to anticipate what those effects [of Brexit] may be, that uncertainty would be a negative factor and come at a time when the global recovery remains slow and somewhat weak.

That kind of uncertainty would be unhelpful.”

Ouch. The FTSE 100 has now tumbled below the 6,000 mark for the first time since February 25.

The index has shed 50 points this morning, or 0.8%, to 5994 points.

Banks, building firms and miners are leading the selloff, while only four blue-chip shares index have risen:

The top risers and fallers on the FTSE 100 today

Updated

FXTM chief market strategist Hussein Sayed confirms that investors are racing to safe-haven assets:

Markets anxiety was clearly reflected in CBOE’s volatility index “VIX”, which climbed above 20 for the first time since late February, indicating that investors are now taking the vote more seriously than in the past couple of weeks, and accordingly are adjusting their portfolios.

European stocks hit three-month lows

European stock markets have hit their lowest levels since last February, as Brexit fears stalk the trading floors.

Britain’s FTSE 100 has shed 34 points in early trading, down 0.5% at 6010. And there are deeper losses in other markets; the French CAC has lost 1.2% and the German DAX is down 0.9%.

The main European stock markets in early trading
The main European stock markets in early trading Photograph: Thomson Reuters

Conner Campbell of SpreadEx says pre-referendum fears are growing.

The latest Guardian/ICM survey has the Leave campaign with a 6 point advantage, with polls from the ORB/Telegraph and YouGov/Times suggesting similar leads for Boris Johnson and co.

Perhaps most damning is the fact that The Sun this morning came out in favour of a Brexit with a flashy and trashy editorial on the reason why Britain should quit the EU.

The Brexiters have begun to dominate the conversation at the key time, and as shown by the market reaction there is a genuine fear that Europe is on a collision course with history.

German 10-year bond yield turns negative

Boom! Germany’s 10-year bond yield has just turned negative as investors scramble to buy debt issued by Europe’s largest member.

This means they are effectively paying to lend to Berlin for a decade, in another sign that fear is gripping the markets today.

German 10-year bund yields.

UK borrowing costs hit record lows

In another sign of market angst, the interest rates on Britain’s government debt has hit a record low.

The price of a UK 10-year gilt has hit record highs this morning, as money pours into government debt. And that has driven down the interest rates (or yield) on the debt to just 1.187%.

You could argue that this is a sign of optimism in the UK. But I think it actually shows that investors are worried, and piling into safe assets -- as other government bonds are also hitting record highs.

EU referendum liquidity operation underway

The Bank of England on Threadneedle Street.
The Bank of England on Threadneedle Street. Photograph: Alicia Canter for the Guardian

The Bank of England is preparing to pump billions of pounds into the UK financial sector today.

This is the first of three special scheduled liquidity auctions planned around the EU referendum on 23 June.

It will allow financial institutions to get their hands on cash, by swapping assets such as mortgages loans. The idea is to prevent the money markets seizing up, if worried banks are reluctant to trade with each other.

The BoE usually holds such auctions, called Additional Indexed Long-Term Repo operations (ILTRs), once a month. These three extra auctions are meant to avoid turmoil breaking out in the markets (as we reported earlier this month).

We’re expecting to get the results around 10.40am. They will show just how worried the City is about a potential Brexit.

Updated

The pound is falling

Sterling is starting the morning on the back foot, as traders digest reports of rising panic inside Downing Street about the EU referendum.

The pound has dropped by over one cent against the US dollar, to $1.4149. That’s close to the two-month low hit yesterday morning (before sterling curiously bounced back).

Against the euro, the pound is down half a percent at €1.2561.

Sterling has also hit a three-year low against the Japanese currency. It now only buys 150 yen, compared with more than 190 a year ago.

The yen is strengthening generally today, as investors race into safe-haven currencies.

Yesterday, a Guardian/ICM poll showed that the Leave campaign now hold a five-point lead. That has helped to spark serious alarm among remain campaigners that Britain could be on the verge of voting to leave the EU.

The news that Britain’s most popular newspaper (which like to pin its colours to a winning horse) is backing Brexit is also hitting the pound:

Updated

The agenda: UK inflation in focus

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

It’s Inflation Tuesday, the time when we find out how the cost of living changed in the UK in the last month.

Fuel prices probably picked up in May, due to the rise in crude oil prices. But consumers have also benefitted from falling clothing prices.

The data comes at 9.30am GMT, along with house price inflation figures for April.

Economists predict that the consumer prices index rose by 0.4%, up from 0.3% a month ago. That would take us a little closer to the official 2% target – and a strong reading might, usually, reignite talk of interest rate hikes.

But these are not normal times, of course. The EU referendum is just nine days away, so the City is getting increasingly agitated about the prospect of Brexit.

The pound is taking the brunt of this, being buffeted by the latest opinion polls which have shown a steady move towards leaving the EU.

Analysts expect a lot more volatility over the next few weeks.

And that’s why the Bank of England is offering the City fresh liquidity today, to help them handle any turmoil (more on that in a moment).

Also coming up:

  • The latest eurozone industrial production figures, at 10am BST
  • US retail sales at 1.30pm BST

Investors are also bracing for central bank action this week, with the US Federal Reserve setting monetary policy on Wednesday, followed by the Bank of Japan and the BoE on Thursday.

So it could be another volatile day....

Updated

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