Following the British vote to leave the European Union, markets around the world slipped into free fall on Friday.
— Bloomberg (@business) June 24, 2016
Sterling fell to a low not seen since 1985, far below its value during the 2008 financial crisis. It lost parity against the dollar and the euro, but Mark Carney, Governor of the Bank of England and Chairman of the G20’s Financial Stability Board, said not to worry.
The bank announced it “has undertaken extensive contingency planning.”
Carney said volatility should be expected and the Bank of England has “extensive planning” in place. Central bankers will “not hesitate to take additional measures” and pump 250 billion pounds into the markets. The central bank said It ”has undertaken extensive contingency planning.”
Donald Tusk, president of the European Council, urged calm. “I want to reassure everyone that we are prepared also for this negative scenario,” he said.
Mario Draghi, president of the European Central Bank, had previously said the bank would do whatever it takes to boost growth in the Eurozone.
Central bankers gathered in secrecy at the Bank for International Settlements’ tower of Basel in Switzerland ahead of the Brexit vote.
— Fabrice Drouin (@FabriceDrouin) June 14, 2016
HSBC characterized Britain regaining its sovereignty as a disease and predicted trouble for the euro in the long run. Researchers suggested pumping money into the financial system. “Eurozone growth around 0.2pp lower in 2016 and 2017, but political contagion could be significantly more damaging. The ECB could front-load QE purchases to periphery countries if spreads widened or could even start OMTs on request,” the multinational bank advised.
“Eurozone growth around 0.2pp lower in 2016 and 2017, but political contagion could be significantly more damaging. The ECB could front-load QE purchases to periphery countries if spreads widened or could even start OMTs on request,” the multinational bank advised.
Asian markets went haywire. Japan’s Nikkei 225 average dropped more than 1,200 points, or 8%.
Japanese Finance Minister Taro Aso said Prime Minister Shinzo Abe had instructed him to cooperate with the Bank of Japan and closely consult with Group of Seven partners in responding to market moves, according to Reuters. The G7 has agreed to tinker with global markets.
— Capital Economics (@CapEconUK) June 24, 2016
And tinker big time. According to Michael Harnett, the Brexit vote may provide the excuse required to induce a market crash. Policy panic, according to the Chief Investment Strategist for Bank of America, will open the floodgates for additional QE and the arrival of helicopter money.
The scheme is supported by investor billionaires such as George Soros, Carl Icahn and hedge fund magnate Stanley Druckenmiller.