Global investors shun risk as Brexit fears climb, MSCI falls

Dubai: Investors again went in risk-off mode as fears of Brexit mounted while the MSCI All-Country World Index fell for a fourth day in the longest slump in four months.

European markets fell, extending losses for a fifth day, their worst since February, while the pound remained in the vicinity of its lowest level in two months.

Polls and bookmakers’ odds showed a rising chance of a Brexit in Britan’s June 23 referendum with the country’s largest tabloid newspaper, the Sun, saying it was in favour of Britain leaving the European Union.

Investors were also watching the Federal Reserve meeting which started on Tuesday. Traders arekeenly awaiting the Fed announcement, along with the afterword on the economy, which will reveal if the economy is stable enough to absorb another rate hike.

“Investors are scared that we might have a Brexit and it is having consequences on the pound and global equities,” Sebastien Henin, head of asset management at The National Investor told Gulf News, adding that “before the Brexit, we might see heightened volatility due to uncertainty.”

The Dow Jones Industrial Average was 0.18 per cent lower at 17,702.01 while the Euro STOXX 600 index was 1.33 per cent lower at 322.44.

The FTSE 100 index also fell more than 1 per cent to 322.44, the German DAX was 0.83 per cent lower at 9,577 while the CAC 40 was also down more than a per cent at 4,157.76.

In the currency market, the pound dropped 1.1 per cent to $1.4120, after touching $1.4109, the lowest since April 14.

Earlier in Asia, the Nikkei ended 1 per cent lower at 15,859.00 while Australia’s ASX 200 index closed more than 2 per cent lower.

Gulf stocks diverged from their world peers, with the Dubai Financial Market General index closing 0.19 per cent higher at 3,329.71 and the Abu Dhabi Securities Exchange General Index closing 0.49 per cent higher at 4,386.42.

Going ahead, Swiss private banking group Julius Baer expects a volatile year with possible headwinds.

“We remain of the opinion that global equities will overall see a year of muted but volatile performance. Seasonal patterns and the US Fed decision, the Brexit referendum and three days later the Spanish general elections suggest headwinds in the coming weeks,” Heinz Rüttimann, emerging markets strategist at Julius Baer said.

Safe haven demand

Amid the market turmoil, Germany’s 10-year bund yield dropped below zero for the first time ever, and gold rose as investors sought to refuge in safe haven instruments.

“Brexit fears have become the main driver for gold following the initial rally in the aftermath of the weak US job report on June 3. Safe haven demand for sovereign bonds have driven yields to new record lows, not least in Germany where 10-year Bund yields turned negative earlier today,” Ole Hansen, head of commodity strategy at Saxo Bank, told Gulf News.

International gold jumped 0.35 per cent to $1,288.41 (Dh4,732.32) an ounce, after gaining 5.7 per cent this month. The yellow metal hit a peak of $1,287 on Monday, its highest since May 16.

Gold priced in sterling was in the vicinity of its highest level in three years as pound weakened. Gold was at £908.73 (Dh4,739.52) per ounce.

UK inflation slightly weaker than expected, steady at +0.3%

London: British inflation held steady in May against expectations for a small increase, as continued falls in clothing prices offset pressure from fuel prices, official data showed on Tuesday.

Consumer prices rose 0.3 per cent compared with a year ago, the Office for National Statistics said, and slightly below economists’ expectation for a 0.4 per cent annual rise.

Overall, the figures underlined the lack of inflationary pressure in Britain’s economy, with inflation holding at 0.3 per cent throughout 2016 with the exception of March.

British inflation has been below the Bank of England’s 2 per cent target for more than two years and last year it was zero, the lowest since comparable records began in 1950.

Still, Bank of England policymakers are unlikely to put too weight on the inflation data when they meet this week, given the uncertainty created by next week’s referendum on Britain’s European Union membership.