World stock markets slid further yesterday as fears heightened that Britain could vote to leave the European Union in next week’s referendum, traders said.
Tokyo’s main stocks index dived 3.5% to a two-month low point yesterday, as worries over Britain’s EU membership vote on June 23 sparked a rally in the safe haven yen currency, which in turn hammered shares in Japanese exporters.
Craig Erlam, senior market analyst at Oanda trading group, said “risk aversion” continued to drive markets ahead of “a number of key risk events”.
“The UK referendum next week is right at the top of this list given the destabilisation effects that a vote to leave the EU could have on global markets,” he said in a note to investors.
US stocks were moderately lower, but shares in professional networking company LinkedIn shot up nearly 48% on news of its $26.2bn takeover by Microsoft.
London’s FTSE 100 index was 1.2% lower compared with Friday’s close. In the eurozone, Frankfurt’s DAX 30 index and the CAC 40 in Paris were both around 1.8% lower.
Banking stocks weighed in Milan, where the main index closed 2.9% down, its lowest level since February.
In foreign exchange, the British pound hit two-month lows against both the euro and dollar.
The pound’s latest tumble against the dollar “could be the tip of the iceberg” if Britons opted to quit the EU, said Alex Holmes, of Capital Economics.
The European single currency meanwhile dropped to 119 yen, the lowest level since February 2013.
Markets are on edge also as the US, Japanese and British central banks meet this week, with investors worrying about global growth as well as the possible impact of Britain quitting the EU, as polls suggest that a Brexit is a real possibility.
Few expect any move on interest rates from the US Federal Reserve and Bank of England, but observers are divided over whether the Bank of Japan will announce more stimulus.
“Chances of the Fed raising interest rates this month are nil at this point, with a July raise looking less and less likely,” Mark Vickery, of Zacks Investment Research, said in a note to clients.
“But the vote whether Great Britain will exit the European Union is far less certain.”
For Oanda’s Erlam, the Brexit risk is also playing a role in the Fed’s timing.
“The Fed will meet this week and while the jobs report may have given them a reason to put off raising interest rates again, the closing of the gap ahead of the UK referendum is likely the real reason behind the delay,” he said.
On Friday European markets dived after European Central Bank chief Mario Draghi called for action to boost the eurozone economy, in comments taken as a sign it is struggling in its battle against torpid growth.
Oil prices also fell again yesterday even as Opec forecast a further tightening of supplies that could lead to a greater balance between supplies and demand for oil.
In London, the FTSE 100 down 1.2% at 6,044.97 points; Frankfurt – DAX 30 down 1.8% at 9,657.44 points and Paris – CAC 40 down 1.85% at 4,227.02 points at the close yesterday.
Traders work at the Frankfurt Stock Exchange. The DAX 30 closed down 1.8% to 9,657.44 points yesterday.