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Britain Offers Assurances as Markets Settle After ‘Brexit’ Vote Despite Leaders’ Assurances, ‘Brexit’ Leaves Markets Nervous
(about 2 hours later)
TOKYO — As investors continued to digest the effects of Britain’s vote to leave the European Union, the markets took a more tempered view on Monday, a relative respite from the big, chaotic moves that followed the country’s referendum. LONDON — As investors continued to digest the worries of Britain’s vote to leave the European Union, markets resumed their downward march on Monday, despite assurances from world leaders that they were prepared for the fallout of a so-called Brexit.
The pound fell about 1.8 percent in early European trading, but it avoided the lows of last week, when it reached levels not seen since 1985. Stocks in London were down about 0.5 percent. Japanese stocks ended the day up 2.4 percent. The pound fell more than 2 percent in early European trading, nearing the lows of last week, when it dropped to levels not seen since 1985. British stocks were down 1.2 percent. Seeking safer havens, investors piled into British government debt, pushing the yield on the country’s main 10-year bond to its lowest-ever level.
Declines in Asian stocks were more tempered, with Japan’s benchmark stock index ending the day up 2.4 percent.
Global authorities are trying to reassure investors, offering promises that they are ready to intervene should the predictions of economic and financial havoc by a British exit from the 28-member bloc play out.Global authorities are trying to reassure investors, offering promises that they are ready to intervene should the predictions of economic and financial havoc by a British exit from the 28-member bloc play out.
Speaking before markets opened in Europe, George Osborne, the chancellor of the Exchequer, said that while Britain’s public finances would be affected by a so-called Brexit, the broader economy was still in good shape. Senior politicians, including George Osborne, Britain’s chancellor of the Exchequer, and Prime Minister Shinzo Abe of Japan, have sought to assure investors that they had the necessary resources and wherewithal to support their economies. Last week, Britain’s central bank governor, Mark J. Carney, promised to do what it took to stabilize markets, and announced he was prepared to unleash a further 250 billion pounds, or about $340 billion, to do so.
Speaking before markets opened in Europe, Mr. Osborne said that while Britain’s public finances would be affected by an exit from the bloc, the broader economy was still in good shape.
“Our economy is about as strong as it could be to confront the challenge our country now faces,” he said. “It is inevitable after Thursday’s vote that Britain’s economy is going to have to adjust to the new situation we find ourselves in.”“Our economy is about as strong as it could be to confront the challenge our country now faces,” he said. “It is inevitable after Thursday’s vote that Britain’s economy is going to have to adjust to the new situation we find ourselves in.”
“We were prepared for the unexpected, and we are equipped for whatever happens,” he added.“We were prepared for the unexpected, and we are equipped for whatever happens,” he added.
Mr. Osborne had fiercely campaigned for Britain to remain in the European Union, and he had warned that leaving the bloc could require an emergency budget involving spending cuts and tax increases. But on Monday, he said that any such moves would have to wait until Britain had a new leader, as Prime Minister David Cameron has said he willstep down by October. Mr. Osborne had fiercely campaigned for Britain to remain in the European Union, and he had warned that leaving the bloc could require an emergency budget involving spending cuts and tax increases. But on Monday, he said that any such moves would have to wait until Britain had a new leader, as Prime Minister David Cameron has said he will step down by October.
Before trading opened in Japan, Prime Minister Shinzo Abe held an emergency meeting with officials from the central bank and the Finance Ministry to discuss how to contain the fallout from the vote in Britain, which pummeled markets in Japan and elsewhere on Friday. Japan was hit especially hard, with the Nikkei suffering its biggest one-day point drop in 16 years and the yen jumping about 5 percent against the dollar. He added that he had spoken to his European and Group of 7 counterparts, as well as other senior officials such as the governor of Britain’s central bank, the head of the International Monetary Fund and the chief executives of major British companies. “We have further well-thought through contingency plans if they are needed,” Mr. Osborne added.
That did little to reassure investors, however. Those worst hit on Monday were banks and airline stocks, with trading in certain financial stocks such as Barclays and Royal Bank of Scotland briefly being suspended because of precipitous declines.
“This is a historic moment, of the same magnitude as the fall of the Berlin Wall, and the full impact won’t be seen for years,” said Philippe Gijsels, at BNP Paribas Fortis in Brussels. “The market is very, very nervous.”
Investors in Britain are hampered by the lack of any clear idea of what is to come, Mr. Gijsels said, adding, “I fear we’ll be in an extremely volatile market for some time to come.”
“Everyone agrees that Brexit will be negative for U.K. markets and the economy,” he said, though the weaker pound would help to support exports.
“The bottom line is that it’s extremely difficult to estimate what the impact will be,” Mr. Gijsels said, helping explain why investors are pouring money into government bonds, even though yields are already at historic lows.
Before trading opened in Japan, Mr. Abe held an emergency meeting with officials from the central bank and the Finance Ministry to discuss how to contain the fallout from the vote in Britain, which pummeled markets in Japan and elsewhere on Friday. Japan was hit especially hard, with the Nikkei suffering its biggest one-day point drop in 16 years and the yen jumping about 5 percent against the dollar.
On Monday, the Japanese authorities issued their strongest warning yet that they were prepared to intervene in the market to curb the rise of the yen. Markets elsewhere in the region were mostly little changed. Japan, however, generally fears an excessively strong currency, which can hurt the country’s economy by making its exports more expensive and consequently less competitive.On Monday, the Japanese authorities issued their strongest warning yet that they were prepared to intervene in the market to curb the rise of the yen. Markets elsewhere in the region were mostly little changed. Japan, however, generally fears an excessively strong currency, which can hurt the country’s economy by making its exports more expensive and consequently less competitive.
“There is still uncertainty and risk in the financial markets, and it’s important that we continue to work for stability,” Mr. Abe told reporters after a meeting at the prime minister’s office. He added that he had instructed the finance minister, Taro Aso, to “coordinate with the Bank of Japan and be even more mindful of movements in the markets, including the currency market.”“There is still uncertainty and risk in the financial markets, and it’s important that we continue to work for stability,” Mr. Abe told reporters after a meeting at the prime minister’s office. He added that he had instructed the finance minister, Taro Aso, to “coordinate with the Bank of Japan and be even more mindful of movements in the markets, including the currency market.”
That appeared to be enough to convince traders that the yen was a somewhat less safe haven for their capital than it had appeared on Friday, when they bought up the currency in droves after selling the pound. After Mr. Abe spoke, the yen ticked down against the dollar and other currencies. That, in turn, helped push the Nikkei 225 stock average up 201 points when the Tokyo Stock Exchange opened. After Mr. Abe spoke, the yen ticked down against the dollar and other currencies. That, in turn, helped push the Nikkei 225 stock average up 201 points when the Tokyo Stock Exchange opened.
“For Japan, the key transmission channel has been via the currency,” Kathy M. Matsui, an equities strategist at Goldman Sachs, wrote in a note to clients describing the potential for the yen’s upswing to depress profits at Japanese companies.
Mr. Abe’s efforts, and those by other political leaders in Asia, to restore investor confidence highlighted deep nervousness worldwide about the economic repercussions of Britain’s decision to end its more than four-decade membership in the European Union.