TOKYO: Asian stocks tumbled by the most in two months and the pound sank to an eight-week low amid growing anxiety the U.K. will vote to leave the European Union. Japanese government bonds rallied with U.S. Treasuries as investors favored the safest assets.
The MSCI Asia Pacific Index retreated as emerging-market currencies weakened across most of the region. The pound slid for a fourth day after a poll showing a 10 percentage-point lead for Britain to exit the EU sent it tumbling late on Friday. The yen rose toward its strongest level since 2014 as yields on 10-year sovereign debt dropped to record lows in Japan and Taiwan. Oil retreated after a report showed an increase in U.S. drilling rigs.
Optimism has given way to fear in global financial markets ahead of monetary policy reviews in the U.S. and Japan this week, and the U.K.’s June 23 referendum on EU membership. Polls suggest the result of the vote is too close to call and economists predict the pound will either sink to the lowest level in more than three decades or climb toward the highest this year depending on the outcome.
“The market hates uncertainty,” said Yoshinori Ogawa, a markets strategist at Okasan Securities Co. in Tokyo. “Most market participants think that the U.K. will probably remain, but we’re seeing some poll results that show those who’ll vote to leave outnumber the ‘Remain’ camp.”
Chinese data released Monday added to evidence that the world’s second-largest economy is stabilizing. Industrial production rose 6 percent from a year earlier in May, matching economists’ estimates, and retail sales climbed 10 percent. Investors start counting down to Wednesday’s post-meeting statement from the Federal Reserve and Thursday’s policy review from the Bank of Japan. Most economists expect the latter to expand record monetary stimulus by July, a Bloomberg survey shows.
The MSCI Asia Pacific Index sank 1.7 percent as of 11:40 a.m. Tokyo time. Benchmark stock gauges in Hong Kong, Singapore and South Korea tumbled by the most since February, while Japan’s Topix index slipped to a two-month low.
Futures on the S&P 500 declined 0.3 percent, following a 0.9 percent slump in the U.S. benchmark last session, its steepest drop since May 17.
The pound dropped as much as 0.7 percent to $1.4159. It slumped 1.4 percent on Friday after an Orb/Independent newspaper poll showed 55 percent support for the “Leave” campaign, and 45 percent for “Remain.” Surveys at the weekend were less stark, with an online poll by Opinium for the Observer newspaper showing 44 percent support for Britain staying in the EU and 42 percent against. Hedge funds and other large speculators are betting on sterling futures weakness by the most since June 2013, a report from the Commodity Futures Trading Commission showed.
The yen strengthened versus all 16 major peers. The BOJ should expand monetary stimulus as soon as this week by boosting bond purchases rather than pushing interest rates further into negative territory, Nobuyuki Nakahara, an influential adviser to Prime Minister Shinzo Abe, said in an interview on Friday. The majority of economists surveyed by Bloomberg expect the central bank to remain on hold on Thursday.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was steady after rising 1.1 percent over the previous two sessions. Odds of an increase in U.S. key rates don’t exceed 50 percent before December, according to Fed funds futures tracked by Bloomberg. There is zero chance of a move this week, the data show.
The currencies of Malaysia, South Korea and Taiwan all weakened at least 0.6 percent, leading declines in Asia.
U.S. Treasuries due in a decade advanced for a fifth day, pushing their yield down by two basis points to 1.62 percent, set for the lowest close since December 2012.
“Everyone is hiding in Treasuries,” Tom di Galoma, managing director of government trading and strategy at investment bank Seaport Global Holdings LLC in New York, said on Friday. Anticipation of the Fed policy meeting next week was helping to push yields lower, he said, “but Brexit is far more important.”
Japan’s 10-year yield dropped to a record of minus 0.165 percent, while Taiwan’s fell to an unprecedented 0.76 percent.
The cost of protecting Asian issuers’ debt against default increased by the most in three weeks. The Markit iTraxx Asia index climbed three basis points to 145, according to Westpac Banking Corp prices.
Gold for immediate delivery traded at $1,273.80 an ounce and earlier touched $1,278.50, the highest since May 18. A Brexit vote on June 23 could propel prices to $1,400, analysts at Capital Economics Ltd. said in a report on Friday.
West Texas Intermediate crude fell 1.3 percent to $48.45 a barrel after Baker Hughes Inc. data out on Friday showed that rigs targeting crude in the U.S. rose by three to 328 last week, capping the longest run of weekly gains since August.