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New York - US stock futures plunged, triggering a brief trading curb, as the UK’s decision to leave the European Union fanned speculation that a divided Europe would put another brake on already fragile global growth.
S&P 500 Index contracts slumped 4.3% at 02:20 in New York. The pound slid the most on record to its weakest since 1985, while the yen rallied on demand for haven assets. Polling before the referendum had indicated a vote too close to call. Just after 06:00 London time, as most votes were counted, the BBC said there was no way back for the pro-EU side, with voters having backed “Leave” by 52% to 48%.
S&P 500 futures dropped as much as 5.1% just before 00:30 in New York, triggering a limit-down rule. The curb means the contract cannot trade at a lower price for the remainder of the overnight session.
Central banks have sounded the alarm over a potential Brexit, with chiefs of the Fed, Bank of Japan and Bank of Canada all citing the vote as a potential disruption to the global economy. Yellen said on Thursday the decision could have consequences for financial markets, and “in turn for the US economic outlook.” The International Monetary Fund had warned that a so-called Brexit risked damage to the UK economy.
“Risk-off is back,” Joe Quinlan, chief market strategists at US Trust, Bank of America Private Wealth Management, said by phone. “We’ve got a fragile, weakening economy and the last thing we need is for one of the stronger developed economies to falter. If it’s a leave vote, you just chipped away a little bit at global growth for the next 12 months.”
Futures contracts on the CBOE Volatility Index soared 49% in after-market trading, after the VIX plunged the most since 2013 Thursday. Equity futures and other risk assets had climbed earlier after a YouGov poll showed support for remaining stood at 52%, while a separate survey conducted by Opinium indicated a slight lead for the Leave camp.
The equity gauge could plunge as much as 7% in the event of a Brexit, Bank of America strategists led by Savita Subramanian wrote in a note prior to the referendum. A vote to remain would weaken the dollar and boost crude prices, spurring a 3% to 4% rally in US stocks, they said.
The vote comes at a time when uncertainty already plagues US stocks, with questions around the Fed’s ability to stoke growth, the fall elections, a four-quarter decline in corporate profits and price-earnings ratios that are close to a decade high. The S&P 500 plunged 11% in its worst-ever start to a year before recovering through April. It’s virtually been stuck in place since, struggling to hold above the 2 100 level that has capped three rallies since November.
