U.S. stock futures plunged, triggering a brief trading curb, as the U.K.’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 3.3 percent at 4:12 a.m. 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 6 a.m. 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 percent to 48 percent.
S&P 500 futures dropped as much as 5.1 percent just before 12:30 a.m. 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 yesterday the decision could have consequences for financial markets, and “in turn for the U.S. economic outlook.” The International Monetary Fund had warned that a so-called Brexit risked damage to the U.K. economy.
“U.S. stocks are clearly following the European market,” said Joe Rundle, head of trading at ETX Capital in London, who has been awake all night. “The risk is that this will trigger a U.K. recession and that will in turn cause a European and global recession. For me, this is as big as 2008 and has the potential to be even bigger. I don’t see the Fed raising interest rates any time soon, at least not this year.”
Equity futures and other risk assets had climbed earlier after a YouGov poll showed support for remaining stood at 52 percent, while a separate survey conducted by Opinium indicated a slight lead for the Leave camp.
The equity gauge could plunge as much as 7 percent in the event of a Brexit, Bank of America Corp. 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 percent to 4 percent rally in U.S. stocks, they said.
The vote comes at a time when uncertainty already plagues U.S. 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 percent 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.