TOKYO: The dollar plunged below 100 against the yen, Asian stocks cratered and gold prices surged Friday as financial markets were rocked by early results from the U.K. referendum on European Union (EU) membership that pointed to a Brexit.
As investors remained on edge with results from the U.K. trickling in, haven assets received a boost during Asian hours.
Spot gold climbed 5 percent to $1,318.00 an ounce as of 11:35 a.m. HK/SIN.
Government bonds also saw yields drop; the yield on the 10-year Japanese government bond fell to negative 0.192 percent as of 11:35 a.m. HK/SIN, compared to levels near negative 0.129 percent earlier. The yield on the 10-year U.S. Treasury note fell to 1.5344 percent, compared with 1.704 earlier.
Bond prices move inversely to yields.
In Japan, the Nikkei 225 tumbled 8.19 percent in the afternoon session on the back of fresh strength in the yen.
The Japanese yen initially weakened to as much as 106.81 against the dollar in early trade, but tracking the drop in the British pound amid the first set of results from the U.K. referendum, the currency strengthened. As of 11:37 a.m. HK/SIN, the dollar fell to 101.47 against the yen, having briefly fallen below 100.
Across the Korean Strait, the Kospi was down 3.53 percent.
Australia’s ASX 200 dropped 3.15 percent, as stocks with exposure to the U.K. tumbled.
Henderson Group was down 12.72 percent; the investment management company is listed both on the Australian Securities Exchange and the London Stock Exchange. Similarly shares of Clydesdale Bank, which was spun-off from the National Australia Bank’s U.K. business, was also down 11.01 percent. BT Investment shares dropped 12.22 percent.
Major Australian banks were also under pressure, with shares of ANZ off by 4.46 percent, Commonwealth Bank of Australia down 3.48 percent, Westpac down 4.49 percent and National Australia Bank down 3.87 percent.
Chinese mainland markets were lower, with the Shanghai composite down 1.19 percent and the Shenzhen composite down 1.21 percent. In Hong Kong, the Hang Seng index was down 3.67 percent.
“Risk assets and safe havens alike were whipsawed alongside sterling swings,” said Wei Liang Chang, a foreign exchange strategist at Mizuho Bank.
In the first set of results from the U.K. referendum vote, the race between the ‘leave’ and ‘remain’ camps was too close to call but sentiment was shaken by results showing the city of Sunderland reporting a majority of people voting to stay in the EU.
The working-class region of Sunderland in the north-east of England reported a higher-than-expected vote to leave, causing markets to react negatively with the pound, oil and gold prices falling after the result. Sunderland is seen as a bellwether of whether the leave campaign has managed to sway a blue-collar demographic, according to the think tank Open Europe.
The currency market was volatile Friday morning Asia time. The British pound dropped to 1.3525 against the dollar, after reaching an earlier session low of $1.3458.
“For the most part, trading has been periodic amid dwindling liquidity,” said Stephen Innes, a senior foreign exchange trader at OANDA. “While we expect liquidity to deteriorate as we near the final outcome, market depth is playing out as anticipated. We should expect a high level of volatility, bordering on excessive at times, as results hit the wires.”
Major Japanese stocks were under pressure, with Toyota down 9.22 percent, Nissan down 8.59 percent and Honda off by 9.11 percent. A stronger yen is a negative for exporters as it reduces their overseas profits when converted into local currency.
The euro also dropped against the greenback, trading at $1.0949 compared to an earlier high of $1.1432. Elsewhere the Australian dollar and the New Zealand dollar also dropped against the dollar.
The on-shore Chinese yuan traded at 6.6023 against the dollar. Before market open, the People’s Bank of China (PBOC) guided the yuan weaker by fixing the midpoint at 6.5776, compared to Thursday’s fix at 6.5658. China’s central bank lets the yuan spot rate rise or fall a maximum of 2 percent against the dollar, relative to the official fixing rate.
“Today is a big test day not only for the confidence of Britain towards the European Union but also for the PBOC on managing the movement of the yuan,” said Iris Pang, senior economist for Greater China, at Natixis.
“The PBOC has reiterated that the yuan is liberalized towards a more market-oriented currency. It is important for the regulator to demonstrate to the market that it allows movements in the [onshore yuan] and [offshore yuan] market to reflect the volatilities created by the Brexit voting event,” she said.
Sharp shares tumbled 16.54 percent in afternoon trade after the Japan Exchange Group, which operates the Tokyo Stock Exchange, announced the electronics maker would be reassigned from the first section to the second section on the exchange. The first section is for large-sized companies, while the second section is for medium-sized companies.
Oil prices were also under pressure Friday Asia time, with global benchmark Brent was down 5.34 percent at $48.19 a barrel as of 11:42 a.m. HK/SIN. U.S. crude futures were down 5.47 percent at $47.37. Energy stocks in the region were under pressure, with Santos shares down 6.26 percent, Woodside Petroleum down 3.27 percent and Inpex off by 9.38 percent.
Stateside, the Dow Jones industrial average closed up 230.24 points, or 1.29 percent, at 18,011.07. The S&P 500 closed up 27.87 points, or 1.34 percent, at 2,113.32 and the Nasdaq composite added 76.72 points, or 1.59 percent, to 4,910.04.