Gold Boosted, Bond Yields Drop on Brexit Vote Fears
The global rush to safe-haven assets continued on Thursday as investors focused on next week’s looming referendum about whether the U.K. will maintain its membership in the European Union.
Gold prices hit a 22-month high, rising for the seventh-straight session and flirting with the $1,300-an-ounce level. The precious metal saw gains of 0.80% by the end of the session, adding to its more than 22% gains for the year.
Investors also snapped up U.S. Treasury bonds, seen as a safe haven, sending the yield on the 10-year note down more than 1.5%. Yields move in the opposite direction of prices. Global bond yields also extended their recent slides: The German 10-year Bund, which saw a negative yield for the first time ever last week, dropped to a record low of -0.035%, while British 10-year Gilt also fell to a record low.
Amid the rush to less-risky assets, global equity prices mostly saw declines. In the U.S., stocks traded around the flat line, while the pan-European STOXX Europe 600 index slid 0.72% on the session and the U.K.’s FTSE 100 slipped 0.27%. Markets in Asia closed the mid-week session sharply lower: Japan’s Nikkei dropped 3.05%, and Hong Kong’s Hang Seng declined 2.10%, while China’s Shanghai Composite saw less substantial losses of 0.50%.
Meanwhile, global oil prices saw sharp declines: U.S. crude dropped 3.75% to $46.21 a barrel, while Brent, the international benchmark, shed 3.63% to $47.19 a barrel.
Phil Flynn, PRICE Futures Group senior market analyst and FOX Business contributor, said what’s weighing most on the market is heightened fears about the future of interest-rate policy in the United States and polls out of the U.K. showing the “leave†vote gaining momentum.
“[Fed Chief] Janet Yellen obviously did not inspire confidence in the global markets with her comments [on Wednesday], and other central bank actions around the globe are not either,†he said. “The bottom line is that this Brexit vote is definitely raising concerns that it will push the globe into recession, at least in Europe.â€
At the conclusion of the Federal Open Market Committee’s two-day policy meeting Wednesday, interest-rate policy held steady, but the Fed’s growth outlook for the U.S. was revised lower and Yellen said the looming Brexit vote was “one of the factors†in the committee’s monetary-policy decision.
Further, data released on Thursday from the Economist Intelligence Unit showed that if Britain were to leave the EU, the move would ignite a recession, and push GDP in the region down 6% by 2020.
“Britain’s ability to maintain its role on the international stage would be called into question as the government would be drawn into a distracting and protracted renegotiation of its trade agreements,†the Economist Intelligence Unit reported. “From an economic perspective, the uncertainty caused by a leave vote would upset consumer and market sentiment, which could cause a 14-15% devaluation of the pound in 2016 and push the U.K. into recession in 2017."
While many market participants are expecting next Thursday’s vote to result in the U.K. maintaining its membership in the EU, Flynn said it’s all the uncertainty surrounding the outcome that’s throwing a wrench into the global market’s recovery.
“If they do leave, you look at the hard numbers and it shouldn’t be a big deal. But it is a big deal because it creates uncertainty and we don’t know what’s going to happen next, who’s going to be the next to leave [the EU]. It really is a big market issue,†he said.
Tensions surrounding the vote have been ratcheted up as June 23 nears. On Wednesday, Jo Cox, a member of British Parliament and the Labour Party, died after being shot and stabbed several timesin Leeds by an attacker who witnesses said shouted “Britain first,†a slogan used by activists supporting a “leave†vote. All campaign events by officials on both sides of the vote were suspended in the wake of the attack.