London (Reuters) – World stocks headed for one the biggest slumps on record on Friday as a decision by Britain to leave the European Union triggered 8% falls for Europe's biggest bourses and a record plunge for sterling.
Such a body blow to global confidence could well prevent the Federal Reserve from raising interest rates as planned this year, and might even provoke a new round of emergency policy easing from all the major central banks.
Risk assets were scorched as investors fled to the traditional safe harbors of top-rated government debt, Japanese yen and gold.
Billions were wiped from share values as Europe saw London's FTSE drop 6% in early deals, Germany's DAX and France's CAC 40 slump 7.5 and 9%, and Italian and Spanish markets plunge more than 11%.
Markets Were Wrong
The rout was compounded by the fact that markets had rallied on Thursday, having become increasingly convinced that U.K. voters would opt to stay in the EU.
Britain's big banks took a $130 billion battering, with Lloyds and Barclays plunging as much as 30%. EMINI S&P 500 futures ESc1 were down 4%, and Japan's Nikkei ended down 7.9%.
The British pound collapsed no less than 18 U.S. cents, easily the biggest fall in living memory, to hit its lowest since 1985. The euro in turn slid 3.2% to $1.1012 as investors feared for its very future.
Cameron Stepping Down
Having campaigned to keep the country in the EU, British Prime Minister David Cameron confirmed he would step down.
Results showed a 51.9/48.1% split for leaving, setting the UK on an uncertain path and dealing the largest setback to European efforts to forge greater unity since World War II.
Sterling sank a staggering 10% at one point, and was last at $1.3582, having carved out a range of $1.3228 to $1.5022. The fall was even larger than during the global financial crisis, and the currency was moving 2 or 3 cents in the blink of an eye.
"It's an extraordinary move for financial markets and also for democracy," said co-head of portfolio investments of London-based currency specialist Millennium Global Richard Benson.
"The market is pricing interest rate cuts from the big central banks and we assume there will be a global liquidity-add from them in the next few hours," he added.
No Asset Class Untouched
The shockwaves affected all asset classes and regions.
The safe-haven yen sprang higher to stand at 102.15 per dollar, having been as low as 106.81 at one stage. The dollar peak-decline of 4% was the largest since 1998.
That prompted warnings from Japanese officials that excessive forex moves were undesirable. Indeed, traders were wary in case global central banks chose to step in to calm the volatility.
The Bank of England said it would take all necessary steps to shield Britain's economy. A source told Reuters it was in touch with other major central banks. The Bank of Japan Governor Haruhiko Kuroda added his bank was also ready to provide liquidity if needed to ensure market stability.
Other currencies across Asia and in eastern Europe as it woke up suffered badly on worries that alarmed investors could pull funds out of emerging markets. Poland, where many of the eastern Europeans in Britain come from, saw its zloty PLN slump 5%.
Europe's natural safety play, the 10-year German government bond, surged to send its yields tumbling back into negative territory and a new record low.
MSCI's broadest index of Asia-Pacific shares outside Japan slid almost 5%, while Shanghai stocks lost 1.1%.
Financial markets have been gripped for months by worries about what Brexit, or a British exit from the European Union, would mean for Europe's stability.
Investors duly stampeded to sovereign bonds, with U.S. 10-year Treasury futures jumping more than 2 points in an extremely rare move for Asian hours.
UK Bond Downgrade Coming
As investors sought safer assets, the rally even extended to UK bonds, despite ratings agency Standard and Poor's warning it would likely downgrade the country's AAA rating if it left the EU.
Across the Atlantic, investors were pricing in even less chance of another hike in U.S. interest rates given that the Federal Reserve had cited a British exit from the EU as one reason to be cautious on tightening.
"It adds weight to the camp that the Fed would be on hold. A July [hike] is definitely off the table," said Mike Baele, managing director at the private client reserve group at U.S. Bank in Portland, Oregon.
Fed funds futures were even toying with the chance that the next move could be a cut in U.S. rates.
Commodities likewise swung lower, as a Brexit would be seen as a major threat to global growth. U.S. crude WTI shed $3.00 to $47.11 a barrel in erratic trade, while Brent fell as much as 6% to $47.83 before clawing back to $48.18.
Industrial metal copper sank 3%, but gold galloped more than 6% higher thanks to its perceived safe-haven status.