Pound drops on EU concern, Asian shares decline

Sydney - The pound tumbled on a report that UK Prime Minister Theresa May will signal plans to quit the European Union’s (EU) single market to regain control of Britain’s borders and laws.

Haven assets from gold to the yen rose while stocks fell across Asia.

Sterling declined as much as 1.6% against the greenback after the Sunday Times said May will prepare to withdraw from tariff-free trade with the region in return for the ability to curb immigration and strike commercial deals with other countries.

The euro also fell and the yen strengthened for a sixth day. China’s Shenzhen Composite Index tumbled the most in 10 months. Indexes in Japan, Korea and Singapore all lost at least 0.5%.

The British currency has fallen 19% against the dollar since the nation opted to leave the EU in June’s referendum, with declines since the initial aftermath of the vote mainly sparked by concern May would pursue a so-called hard Brexit.

Global equity markets have added more than $3trn since Donald Trump’s election, with US shares near record highs and Asia Pacific shares having posted three straight weeks of gains.

"The market is now positioning for some fairly punchy rhetoric from Theresa May and this idea of hard Brexit and a clean break from the single market seems increasingly likely," said Chris Weston, Melbourne-based chief market strategist at IG.

"The prospect of volatility here is now very high."

There will be no trading in Treasuries on Monday due to a US holiday.

Currencies

The pound dropped to as low as $1.1986, a level unseen since October. Sterling pared losses to 1.2% against the dollar as of 3:57 in Tokyo after the UK Treasury was said to plan to calm investors after May’s speech and the Times of London reported Donald Trump would offer a quick trade deal to Britain when he assumes power.

The yen rose 0.6% to 113.82 per dollar, extending gains for the longest winning streak since June. The euro dropped 0.2% to $1.0624.  Lira weakened 1%.

The currency jumped 3.7% over Thursday and on Friday after Turkey’s central bank took steps to prop up the lira by tightening liquidity.

The Aussie slid 0.3% to 74.77 US cents, after climbing 2.8% in the best weekly performance since March.

Stocks

S&P 500 Index futures lost 0.2%. The Shenzhen Composite Index tumbled as much as 6.1%, the biggest loss since February 2016, with at least 80 stocks falling by the 10% daily limit.

The gauge has declined for five straight days, set for the longest run of losses since last May.

Shanghai Composite fell 0.4% after paring a loss of as much as 2.2%. Hong Kong’s Hong Kong’s Hang Seng decreased 0.9%.

Japan’s Topix index slipped 0.9%, while the Nikkei 225 Stock Average erased its gains for 2017. South Korea’s Kospi retreated 0.4%.

Samsung Electronics had its biggest two-day retreat since November after South Korea’s prosecutors sought an arrest warrant for Vice Chairman Jay Y. Lee in a bribery probe.

The company didn’t immediately have a comment on the arrest warrant. Taiwan’s Taiex Index dropped 0.9% and Singapore’s Straits Times Index slid 0.7%.  

Australia’s S&P/ASX 200 Index bucked the trend, gaining 0.5% after Billionaire Li Ka-shing agreed to buy Duet Group.  

Bonds

Australia’s 10-year bond yield rose less than one basis point to 2.70%.

Futures pointed to further decline in Treasury yields after 10-year rate dropped 2 basis points last week to 2.40%. The benchmark contract climbed 3/32 to 124 7/8.

Commodities

Oil held gains to trade above $52 a barrel. Gold climbed 0.8%, extending last week’s surge to trade at $1 206.42 an ounce.