Investors swapped equities for less risky assets such as US treasury bonds and the Japanese yen yesterday on fears about the potential impact of the British referendum vote in less than two weeks on whether it should leave the European Union.
An index of world equity markets fell after having snapped a five-day winning streak on Thursday, while oil prices slid and were off 2016 highs hit this week due to a stronger dollar.
US Treasury yields, which move in the opposite direction of prices, fell to more than three-month lows as European sovereign debt yields plunged on continuing concerns about global growth and a potential British exit from the EU.
Britain will hold a referendum on its European Union membership on June 23. Though bookmakers’ odds point towards a British vote to stay in the EU, polls suggest a neck-to-neck race.
Ten-year yields in Germany, Japan and Britain all struck record lows. German Bund yields, the benchmark for borrowing costs across the eurozone, have fallen almost 10 basis points in little over a week to as low as 0.021 per cent.
Investors ditched stocks in favour of assets considered safer during times of economic uncertainty, such as bonds, gold, and the yen. Wall Street followed the lead of Asian and European stocks and fell.
The Dow Jones industrial average fell 96.94 points, or 0.54 per cent, at 17,888.25, the S&P 500 lost 16.29 points, or 0.77 per cent, at 2,099.19 and the Nasdaq Composite dropped 49.22 points, or 0.99 per cent, at 4,909.39. The MSCI world equity index of shares in 45 nations was down 1.37 per cent.
Europe’s broad FTSEurofirst 300 index suffered its biggest drop in four months. The index fell 2.34 per cent at 1,308.83, as political worries put pressure on cyclical stocks.
In the currency market, the yen and Swiss franc rose as oil prices slid and bank shares led global equity markets lower, stoking a fresh wave of bids for low-risk assets.
The US dollar index held earlier gains against a basket of currencies after University of Michigan data showed US consumer sentiment eroded less than forecast in early June, led by an unexpectedly improved view of current economic conditions. The index was up 0.49 per cent at 94.409.
Gold rebounded to a fresh three-week high, as investor risk aversion lifted appetite for the metal. Spot gold was up 0.21 per cent to $1,271.11 an ounce.
Oil prices fell more than two per cent as investors braced for another likely rise in the US oil rig count this week and the firmer dollar weighed on demand for crude futures denominated in the greenback. Brent crude was down 2.43 per cent at $50.69 a barrel, while US crude was down 2.75 per cent at $49.17.