The Jim Bakker Show

From drinks to drugs to cars: Global business hit by EU vote

By Ben Hirschler and Martinne Geller

LONDON (Reuters) – Chief executives from Tokyo to Denver prepared for long-term disruption, job cuts and lower profits on Friday after Britain’s vote to leave the European Union raised widespread fears over economic growth and sent share prices spinning.

In Britain itself, businesses including aerospace, housebuilders and drugmakers fear a range of difficulties from slumping demand to new regulatory hurdles as the pound plunged to its lowest level since 1985.

British Airways owner IAG <ICAG.L> warned that it would no longer meet its annual profit target and car manufacturers including Ford <F.N>, which employs around 14,000 people in the United Kingdom, indicated that it could ultimately lead to job cuts.

“Ford will take whatever action is needed to ensure that our European business remains competitive,” the company said, adding that it had not changed its investment plans yet.

World stocks headed for one the biggest slumps on record as investors predicted the impact of the narrow 52 vs 48 percent vote for Britain to leave the European Union would damage economic confidence across the globe.

The president of Japan’s Nippon Steel & Sumitomo Metal <5401.T>, the world’s second-largest steelmaker, said the vote was extremely disappointing.

“We are greatly concerned for the negative impact this will have, not only on Britain and the EU but also on the global economy,” said Kosei Shindo.

Those who campaigned for Britain to leave had said a weaker pound could help UK exports, but it will also reduce the value of foreign companies’ UK earnings and raise questions about access to the EU market.

“This decision will create tremendous uncertainty, which will slow economic activity and decision making,” said Martin Sorrell, the boss of the world’s biggest advertising group WPP <WPP.L>.

Jaguar Land Rover, Britain’s biggest carmaker, has estimated its annual profit could shrink by 1 billion pounds ($1.4 billion) by 2020 if Britain returns to World Trade Organization rules for trade with Europe.

Shares in the company’s owner, India’s Tata Motors <TAMO.NS>, fell 8 percent.

IMMEDIATE STEPS

Some businesses signaled an intention to push for a settlement between the UK and the EU that would minimize damage to their business, while others took immediate steps.

“This is a lose-lose ‎result for both Britain and Europe,” said Airbus <AIR.PA> CEO Thomas Enders. “We will review our UK investment strategy, like everybody else will.”

Volkmar Denner, CEO of Bosch, said its investment plans would not change, for now, but it was preparing for a weaker British currency: “We have significantly raised our hedging ratios in order to counteract a possible depreciation of the British pound.”

The German appliances maker plans to invest 25 million euros in Britain this year.

Randstad <RAND.AS>, the world’s second-largest employment services company, said it might need to restructure, as in did during the financial crisis in 2009, to cope with disruption to the jobs market.

Prime Minister David Cameron, who campaigned for Britain to remain in, said he would resign and leaders in Scotland, which voted strongly to stay in Europe, said they would consider holding a referendum to leave the United Kingdom.

Makers of Scotch whisky, who export more than 90 percent of what they produce, fear market access could be jeopardized.

“There are serious issues to resolve in areas of major importance to our industry and which require urgent attention, notably the nature of future trade arrangements with both the single (European) market and the wider world,” said David Frost, chief executive of the Scotch Whisky Association.

Some investors warned of a coming British or even global recession as sterling collapsed to lowest since 1985.

Housebuilders Taylor Wimpey <TW.L>, Barratt Developments <BDEV.L> and Persimmon <PSN.L> saw their market values slump by more than a fifth on fears of a sharp economic downturn.

Bank shares such as Barclays <BARC.L> and Credit Suisse <CSGN.S> also tumbled, as well as domestic retailers like Sports Direct <SPD.L> and Marks & Spencers <MKS.L>. Meanwhile safer-haven sectors, like gold miners and tobacco, outperformed.

STERLING HEADACHE

Big swings in sterling will be a headache for some international companies, with a fall in the currency hitting profits earned in Britain.

International companies with sizeable sterling exposure include Denver-based Molson Coors <TAP.N>, owner of Carling beer, which is heavily reliant on the UK.

But for multinationals reporting in sterling, there will be a short-term boost to profits, when expressed in pounds.

Aside from market access, streamlining of regulations within the EU has made life simpler.

Pharmaceutical companies, for example, enjoy a one-stop shop in the form of the London-based European Medicines Agency, which approves new drugs for all EU countries, while the EU’s open airspace deals have fostered a surge in air travel and common policies on agriculture and food safety have allowed for smoother supply chains.

Companies in those sectors have fretted that Britain outside the bloc would disrupt the regulatory landscape.

Ahead of the vote, some British-based multinationals such as Diageo <DGE.L>, Unilever <ULVR.L> and Rolls-Royce <RR.L> had expressed their support for “Remain” directly to employees, although most stopped short of this.

Rolls-Royce said on Friday the medium and long-term impact would depend on the relationships struck by Britain with the EU and the rest of the world.

Government figures show 12.6 percent of Britain’s economic output is linked to exports to the EU’s 27 other members, for whom only 3.1 percent of output is linked to exports to Britain. And 80 percent of British businesses trading overseas do so with the EU.

The Confederation of British Industry has estimated there could be between 550,000 and 950,000 fewer jobs by 2020 in the event of Brexit.

For banks, a huge concern has been the threat that financial institutions based in London could lose their EU “passports”, or the automatic right to sell services across the bloc under single low-cost system. That has made bank shares particularly volatile in the run-up to the referendum.

Brexit uncertainty has also helped push British merger and acquisition activity this year at its lowest as a proportion of global activity since records began in 1980.

It could also impact large deals already in process, such as Anheuser-Busch InBev’s <ABI.BR> $100 billion-plus takeover of SABMiller <SAB.L> and the $30 billion merger of London Stock Exchange Group <LSE.L> and Deutsche Boerse <DB1Gn.DE>.

(Additional reporting by Kate Holton, Ritsuko Ando, Yuka Obayashi and Laurence Frost; editing by Keith Weir and Philippa Fletcher)

Oil prices dive as Britain votes to leave EU

Voters for leaving EU, dropping oil prices

By Ahmad Ghaddar

LONDON (Reuters) – Oil prices slumped by more than 6 percent on Friday after Britain voted to leave the European Union, raising fears of a broader economic slowdown that could reduce demand.

Financial markets have been worried for months about what Brexit, or a British exit from the European Union, would mean for Europe’s future, but were clearly not fully factoring in the risk of a leave vote.

British Prime Minister David Cameron, who campaigned to remain in the EU, said he would stand down by October.

Brent crude <LCOc1> was down 4.85 percent or $2.47 at $48.44 a barrel at 1140 GMT. U.S. crude <CLc1> was down 4.6 percent or $2.31 at $47.80 a barrel.

Earlier in the day, both contracts were down by more than $3, or over 6 percent, the biggest intra-day declines for both since April 18, when a meeting of top global oil producers failed to agree on an output freeze.

Sterling <GBP=> sank 10 percent in value to its weakest since the mid-1980s. The FTSE 100 <.FTSE> fell more than 8 percent at the open, with banks among the hardest hit, but by 1140 GMT had recovered some ground to stand 4.3 percent lower.

“The global uncertainly that (the vote) is likely to unleash is likely to have a potentially negative effect on GDP growth, not only in the UK, but potentially in Europe,” said Michael Hewson, chief market analyst CMC markets.

“Obviously we don’t know that yet, but certainly in the context of where we were 24 hours ago, the knee-jerk reaction is to sell on the reality,” he added.

Some analysts said oil could face further downward pressure.

“Our view is that we have not yet seen the low oil price of the day with Brent likely to trade down towards $45 or lower before we have seen the worst of it,” Bjarne Schieldrop, chief commodity analyst at SEB, said in note to clients.

“Higher risk aversion is likely to make it hard for prices to regain the $50 per barrel mark in anything like the near future,” said Commerzbank analyst Carsten Fritsch.

BP <BP.L> said on Friday its headquarters would remain in the United Kingdom, despite the vote.

The vote to break with Europe is set to usher in deep uncertainty over trade and investments.

“Any further downturn in the economy or volatility in the oil price could cause further distress in the sector and in particular further project….deferrals might have significant consequence for the service sector who also rely on mobility of employees around the world,” PwC UK and EMEA oil and gas leader Alison Baker said.

(Additional reporting by Aaron Sheldrick in Tokyo and Florence Tan in Singapore; editing by Jason Neely)

Stock futures drop after Britons vote to abandon EU

By Tanya Agrawal and Yashaswini Swamynathan

(Reuters) – U.S. stock futures slid in premarket trading on Friday after Britain’s vote to quit the European Union delivered the biggest blow to the global financial system since the 2008 financial crisis.

S&P 500 futures and Nasdaq futures were down about 3.5 percent while those on the Dow Jones industrial average were off 2.8 percent, indicating Wall Street will open sharply lower.

By 8 a.m. ET (1200 GMT), the number of contracts traded on S&P futures had neared their daily average for the past year.

Investors worried about damage to the world economy sought refuge in the dollar and other safe-harbor assets such as gold and U.S. Treasury bonds, while dumping riskier shares. The yield on the U.S. 10-year bond hit its lowest since 2012.

Banks were among the biggest losers.

Britain’s FTSE 100 stock index was down 4.5 percent in early afternoon trading. Asian stocks also tumbled.

Amid the turmoil, sterling hit a 31-year low in its biggest intraday percentage fall on record and Prime Minister David Cameron said he would step down by October.

“The markets are going to trade violently and erratically through the day and it’s going to be a challenging equity environment until investors get greater clarity on the matter,” said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.

Citigroup <C.N>, Bank of America <BAC.N>, JPMorgan <JPM.N> and Goldman Sachs <GS.N> slumped by between 6.2 percent and 7.2 percent. U.S. banks have large operations in London.

Trading in S&P 500 and Nasdaq futures was halted briefly overnight after they fell more than 5 percent, triggering limit thresholds.

U.S. short-term interest rate futures rose amid speculation the Federal Reserve could cut interest rates to help shield the economy from any global fallout.

Investors have been waiting for the Fed to raise borrowing costs as the economy improves.

“It’s too early to assess whether we will have a negative interest rate environment. However, given the knee-jerk global response in the markets, it would seem that low interest rates are here to stay,” said Bakhos.

Fed Chair Janet Yellen said earlier in the week that an exit of Britain from the EU would have “significant repercussions” on the U.S. economic outlook.

Futures on the VIX <.VIX> volatility index – known as Wall Street’s fear gauge – surged 42.3 percent to 24.52, above its long-term average of 20.

The market was already expected to be volatile on Friday as traders adjust portfolios to account for an annual reconstitution of the widely followed Russell stock indexes.

Oil prices also slumped, dropping about 5 percent, the biggest drop since early February. [O/R] Exxon <XOM.N> and Chevron <CVX.N> were down about 3 percent each.

Among gold miners, Barrick Gold <ABX.N> was up 9.3 percent and Newmont Mining <NEM.N> was up 8 percent.

Apple <AAPL.O>, which got more than a fifth of its revenue from Europe last quarter, was down 2.7 percent at $93.48. Facebook <FB.O> was down 3.4 percent at $111.19

U.S. stocks had risen in recent sessions as investors bet that Britain would remain part of the EU.

As of Thursday’s close, the S&P 500 index had risen 3 percent since the start of the year.

Futures snapshot at 8:10 a.m. ET (1210 GMT):

* S&P 500 e-minis <ESc1> were down 73.25 points, or 3.48 percent, with 1,612,911 contracts traded.

* Nasdaq 100 e-minis <NQc1> were down 158.5 points, or 3.55 percent, on volume of 156,665 contracts.

* Dow e-minis <1YMc1> were down 504 points, or 2.81 percent, with 207,671 contracts changing hands.

(Additional reporting by Noel Randewich, Richard Leong and Rodrigo Campos; Editing by Alison Williams and Ted Kerr)

‘Explosive shock’ as Britain votes to leave EU, Cameron quits

By Guy Faulconbridge and Kate Holton

LONDON (Reuters) – Britain voted to leave the European Union, forcing the resignation of Prime Minister David Cameron and dealing the biggest blow to the European project of greater unity since World War Two.

Global financial markets plunged on Friday as results from a referendum showed a 52-48 percent victory for the campaign to leave a bloc Britain joined more than 40 years ago.

The pound fell as much as 10 percent against the dollar to touch levels last seen in 1985, on fears the decision could hit investment in the world’s fifth-largest economy, threaten London’s role as a global financial capital and usher in months of political uncertainty.

World stocks headed for one of the biggest slumps on record, and billions of dollars were wiped off the value of European companies. Britain’s big banks took a $130 billion battering, with Lloyds <LLOY.L> and Barclays <BARC.L> falling as much as 30 percent at the opening of trade.

The United Kingdom itself could now break apart, with the leader of Scotland – where nearly two-thirds of voters wanted to stay in the EU – saying a new referendum on independence from the rest of Britain was “highly likely”.

An emotional Cameron, who led the “Remain” campaign to defeat, losing the gamble he took when he called the referendum three years ago, said he would leave office by October.

“The British people have made the very clear decision to take a different path and as such I think the country requires fresh leadership to take it in this direction,” he said in a televised address outside his residence.

“I do not think it would be right for me to be the captain that steers our country to its next destination,” he added, choking back tears before walking back through 10 Downing Street’s black door with his arm around his wife Samantha.

Quitting the EU could cost Britain access to the EU’s trade barrier-free single market and means it must seek new trade accords with countries around the world.

The EU for its part will be economically and politically damaged, facing the departure of a member with its biggest financial center, a U.N. Security Council veto, a powerful army and nuclear weapons. In one go, the bloc will lose around a sixth of its economic output.

“It’s an explosive shock. At stake is the break up pure and simple of the union,” French Prime Minister Manuel Valls said. “Now is the time to invent another Europe.”

The result emboldened eurosceptics in other member states, with French National Front leader Marine Le Pen and Dutch far-right leader Geert Wilders demanding their countries also hold referendums. Le Pen changed her Twitter profile picture to a Union Jack and declared “Victory for freedom!”

The vote will initiate at least two years of divorce proceedings with the EU, the first exit by any member state. Cameron – who has been premier for six years and called the referendum in a bid to head off pressure from domestic eurosceptics – said it would be up to his successor to formally start the exit process.

His Conservative Party rival Boris Johnson, the former London mayor who became the most recognizable face of the “Leave” camp, is now widely tipped to seek his job.

Johnson left his home to jeers from a crowd in the mainly pro-EU capital. He spoke to reporters at Leave campaign headquarters, taking no questions on his personal ambitions.

“We can find our voice in the world again, a voice that is commensurate with the fifth-biggest economy on Earth,” he said.

‘INDEPENDENCE DAY’

There was euphoria among Britain’s eurosceptic forces, claiming a victory over the political establishment, big business and foreign leaders including U.S. President Barack Obama who had urged Britain to stay in.

“Let June 23 go down in our history as our independence day,” said Nigel Farage, leader of the eurosceptic UK Independence Party, describing the EU as “doomed” and “dying”.

On the continent, politicians reacted with dismay.

“It looks like a sad day for Europe and Britain,” said German foreign minister Frank-Walter Steinmeier. His boss Angela Merkel invited the French and Italian leaders to Berlin to discuss future steps.

The shock hits a European bloc already reeling from a euro zone debt crisis, unprecedented mass migration and confrontation with Russia over Ukraine. Anti-immigrant and anti-EU political parties have been surging across the continent, loosening the grip of the center-left and center-right establishment that has governed Europe for generations.

U.S. presidential candidate Donald Trump, whose own rise has been fueled by similar disenchantment with the political establishment, called the vote a “great thing”. Britons “took back control of their country”, he said in Scotland where he was opening a golf resort. He criticized Obama for telling Britons how to vote, and drew a comparison with his own campaign.

“I see a big parallel,” he said. “People want to take their country back.”

American Vice President Joe Biden said the United States would have preferred Britain to remain in the EU, but respected the decision.

Britain has always been ambivalent about its relations with the rest of post-war Europe. A firm supporter of free trade, tearing down internal economic barriers and expanding the EU to take in ex-communist eastern states, it opted out of joining the euro single currency or the Schengen border-free zone.

Cameron’s ruling Conservatives in particular have harbored a vocal anti-EU wing for generations, and it was partly to silence such figures that he called the referendum in 2013.

When he called the referendum, he thought it would be a sure thing. But the 11th hour decision of Johnson – a schoolmate from the same elite private boarding school – to come down on the side of Leave gave the exit campaign a credible voice.

Even until the last minute, bookmakers and financial markets had overwhelmingly predicted a Remain vote.

World leaders including Obama, Chinese President Xi Jinping, German Chancellor Angela Merkel, NATO and Commonwealth governments had all urged a “Remain” vote, saying Britain would be stronger and more influential in the EU than outside.

The four-month campaign was among the divisive ever waged in Britain, with accusations of lying and scare-mongering on both sides and rows over immigration which critics said at times unleashed overt racism.

It revealed deep splits in British society, with the pro-Brexit side drawing support from millions of voters who felt left behind by globalization and blamed EU immigration for low wages and stretched public services.

At the darkest hour, a pro-EU member of parliament was stabbed and shot to death in the street. The suspect later told a court his name was “Death to traitors, freedom for Britain”.

Older voters backed Brexit; the young mainly wanted to stay in. London and Scotland supported the EU, but wide swathes of middle England, which have not shared in the capital’s prosperity, voted to leave.

THREAT OF UK BREAK-UP

The United Kingdom itself now faces a threat to its survival. Scottish First Minister Nicola Sturgeon said it was “democratically unacceptable” for Scotland to be dragged out of the EU against its will.

“It is a statement of the obvious that the option of a second referendum must be on the table and it is on the table,” she told reporters, two years after Scots voted to stay in the United Kingdom. “I think an independence referendum is now highly likely.”

The global financial turmoil was the worst shock since the 2008 economic crisis, and comes at a time when interest rates around the world are already at or near zero, leaving policymakers without the usual tools to respond.

The body blow to global confidence could 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 major central banks, despite their limited options.

The Bank of England pledged a huge financial backstop to calm plunging markets. Governor Mark Carney said it was offering to provide more than 250 billion pounds ($347 billion) plus “substantial” foreign currency liquidity and it was ready to take additional measures if needed.

Other central banks around the globe also intervened in markets. The European Central Bank said it was ready to provide euro and foreign currency liquidity if necessary.

Left unclear is the relationship Britain can negotiate with the EU once it leaves.

To retain access to the single market, vital for its giant financial services sector, London may have to adopt all EU regulation without having a say in its shaping, contribute to Brussels coffers, and continue to allow free movement as Norway and Switzerland do – all things the Leave campaign vowed to end.

EU officials have said UK-based banks and financial firms would lose automatic access to sell services across Europe if Britain ceased to apply the EU principles of free movement of goods, capital, services and people.

Huge questions also face the millions of British expatriates who live freely elsewhere in the bloc and enjoy equal access to health and other benefits, as well as millions of EU citizens who live and work in Britain.

(Additional reporting by William James, Kylie MacLellan, Sarah Young, Alistair Smout, Costas Pitas, Andy Bruce and David Milliken; Writing by Mark John and Pravin Char; Editing by Peter Graff)

Nervy global investors revisit 1930s playbook

Unemployed man during the Great Depression

By Mike Dolan

LONDON (Reuters) – Global investors are once again dusting off studies of the 1930s as fears of protectionism, nationalism and a retreat of globalization, sharpened by this week’s Brexit referendum, escalate anew.

With markets on tenterhooks over Thursday’s “too close to call” vote on Britain’s future in the European Union, the damage an exit vote would deal business activity and world commerce is amplified by the precarious state of the global economy and its inability to absorb any left-field political shocks.

As such, the Brexit vote will not be an open-and-shut case regardless of the outcome. Broader worries about global trade, frail growth and dwindling investment returns have festered since the banking shock of 2007/08 and have mounted this year.

Stalling trade growth has already led the world economy to the brink of recession for the second time in a decade, with growth now hovering just above the 2.0-2.5 percent level most economists say is needed to keep per capita world output stable.

Three-month averages for growth of world trade volumes through March this year have turned negative compared with the prior three months, according to the Dutch government statistics body widely cited as the arbiter of global trade data.

And it’s not a seasonal blip. Last year saw the biggest drop in imports and exports since 2009 and their average annual growth of 3 percent over the intervening seven years was itself half that of the 25 years before, according to Swiss asset manager Pictet. 2016 is set to be the fifth sub-par year in row.

A study published by the Centre For Economic Policy Research shows this paltry pace of trade growth is also below the 4.2 percent average for the past 200 years.

Foreign direct investment growth of 2 percent of world output is also at its lowest since the 1990s, while the hangover from the credit crunch has seen annual growth rates in cross-border bank lending grind to a halt from some 10 pct in the decade to 2008.

Parsing the big investment themes of the next five years, Pictet this month highlighted “globalization at a crossroads” – offering both benign and malignant reasoning and implications.

One of these was that trade deceleration was due in part to the inwards reorientation of the world’s two mega economies, the United States and China — the former due to the shale energy boom and the latter’s planned shift to consumption from exports.

Another factor cited was a shift in the world economy towards services and digital activity that is not captured by statistics on merchandise trade.

But Pictet had little doubt about what brewing developments could swamp all that — rising nationalism on the far right and left of the political spectrum in Europe and the United States.

Britain “threatens to drive a fault line” through one of the world’s biggest free trade blocs, it said, and both presumptive candidates for November’s U.S. presidential election have talked of renegotiating the still-unratified Trans Pacific Partnership binding economies making up 40 percent of world trade.

“If the rising tide of nationalism results in greater protectionism, then the decline in international trade the world has experienced so far could well morph into something more pernicious,” the Swiss firm said, adding that multinationals — particularly banks and tech companies — were most vulnerable.

“1937-38 REDUX?”

Against that backdrop, this year’s market wobbles make total sense — especially as near-zero interest rates limit central banks’ ability to insulate against further shocks.

But echoes of the last major hiatus in trade globalization during and between the World Wars has economists looking again to the 1930s for lessons and policy prescriptions.

In a paper entitled “1937-38 redux?”, Morgan Stanley economists detail the mistakes that saw monetary and fiscal policy tightened too quickly once a recovery from the 1929 stock market crash and subsequent Depression started in 1936.

Over-eagerness to reset policy before private sector confidence in future growth and inflation had picked up saw a relapse into recession and deflation by 1938. The devastation of World War Two followed, and with it huge government spending on military capacity, war relief and eventually reconstruction.

Morgan Stanley goes on to draw a parallel with the global response to 2008’s crash and subsequent world recession.

Waves of monetary and fiscal easing by 2009 underpinned economic activity, but government budgets have again tightened quickly and before inflation expectations or private investment spending and capital expenditure have been restored.

The second world recession in a decade is now seen as a threat, but with a heavier starting debt burden, historically low inflation and interest rates, stalled trade and a worsening demographic profile. That could mean another global government spending stimulus is needed to re-energize private firms.

“The effective solution to prevent relapse into recession would be to reactivate policy stimulus,” Morgan Stanley said.

Success in preventing a new recession without the cataclysm of a world war would be a profound lesson learned. Political extremism, isolation and protectionism make the task far harder.

(Editing by Catherine Evans)

London traders brace for biggest night since Black Wednesday

The Canary Wharf financial district is seen at dusk in east London, Britain

By William James, Freya Berry and Patrick Graham

LONDON (Reuters) – The world’s biggest banks including Citi and Goldman Sachs will draft in senior traders to work through the night following Britain’s referendum on EU membership, set to be among the most volatile 24 hours for markets in a quarter of a century.

A vote to leave the European Union on June 23 would spook investors by undermining post-World War Two attempts at European integration and placing a question mark over the future of the United Kingdom and its $2.9 trillion economy.

Citi, Deutsche Bank, JPMorgan, Goldman Sachs, HSBC, Barclays, Royal Bank of Scotland and Lloyds are among those banks planning to have senior staff and traders working or on call in London as results start to dribble in after polls close at 2100 GMT, according to the sources.

Jamie Dimon, chief executive officer of JPMorgan Chase & Co, told employees on a visit to Britain this month that if the vote was to leave the EU, the bank would have to have “teams of people thrown on what that means”.

“We won’t know what it means: there is a wide range of outcomes,” Dimon, a supporter of Britain’s membership who has warned of job cuts at JPMorgan in Britain if there is an Out vote, said in the broadcast speech.

A vote to leave could unleash turmoil on foreign exchange, equity and bond markets, spoiling bets across asset classes and potentially testing the infrastructure of Western markets such as computer systems, stock exchanges and clearing houses.

Federal Reserve Chair Janet Yellen has cautioned that a Brexit vote could shake financial markets and potentially push back the timing of the next rise in U.S. interest rates.

Bank of England Governor Mark Carney has said sterling could depreciate, “perhaps sharply” and some major banks have forecast an unprecedented fall to parity with the euro and as low as $1.20 in the days following any vote to leave the bloc.

The Bank of England will be staffed overnight, with senior policymakers on call if markets go into meltdown. The finance ministry would not comment on its staffing plans.

The official Vote Leave campaign argues there is no evidence that leaving the EU would weaken sterling long term, while Nigel Farage, leader of the UK Independence Party has said that even if the currency did fall, it would simply boost British exports.

BREXIT NIGHT?

Sterling – the world’s fourth most traded currency – has moved sharply in recent weeks, often on the back of opinion polls.

Depending on the results from across the United Kingdom, the night of June 23 and early morning of June 24 could rank as one of the most volatile nights in the history of the London market.

“We’ve all seen U.S. elections, UK general elections, we’ve had the Scottish referendum, the collapse of Lehman and QE (Quantitative Easing) but this is by far and away the biggest risk event that has presented itself to the UK,” said Chris Huddleston, head of money markets at specialist bank Investec.

London accounts for 41 percent of global turnover in the $5.3 trillion-a-day foreign exchange market, more than double the turnover in the United States and far more than the 3 percent of its closest EU competitors, France and Switzerland.

“All the traders are going to be in … They don’t like missing big moments, if there’s going to be one, they want to be at their desk,” said a senior source at a major bank based in the Canary Wharf financial district of London.

Some banks are planning the night down to the smallest detail to keep their traders on top form – laying on all night catering and booking nearby hotels to offer temporary respite.

“It is the biggest planned risk event that anyone can remember, so everyone is going to be involved. The question is just when you try and get some sleep,” said one senior foreign exchange trader.

No exit polls are planned by British broadcasters so the first numbers from the counts will be turnout results from 382 different areas followed by totals for ‘Remain’ and ‘Leave’ in each area. [L8N1920W5]

STERLING

Polls have given contradictory pictures of British public opinion, keeping markets guessing on the final outcome.

That has left sterling, currently priced at $1.41, far away from either of its likely resting places after the final result is known – seen by banks as around $1.50 in the event of a remain vote, or $1.30 or lower if Britain votes to leave.

That almost-certain rapid repricing could set the scene for one of the rockiest sessions since traders wrestled down the value of sterling on Black Wednesday, September 16, 1992, when Britain crashed out of the European Exchange Rate Mechanism.

“If it’s Brexit, then we’re looking at something that’s at least on the scale of Black Wednesday,” said Nick Parsons, global co-head of FX strategy at National Australia Bank and a veteran of the 1992 sterling crisis.

Prices for derivatives used to mitigate the risk of sharp swings in sterling point to a period of intense volatility.

Officials and bank managers planning for the event draw comparisons with the 40 percent surge in the Swiss franc in January 2015, which bankrupted dozens of small investment funds and cost banks including Citi hundreds of millions of dollars.

Traders and analysts told Reuters they would expect a Brexit vote to cause sterling to ‘gap’, or plummet lower – as orders to sell the currency met an absence of willing buyers, leaving a blank spot on the price charts snaking across traders’ screens.

Gaps can inflict huge losses on banks and traders, forcing them to bail out of trades at prices far below the automatic sell orders, or ‘stops’ they normally use to limit losses.

Currency market participants have urged the Bank of England to call on U.S. Federal Reserve if the turbulence gets really bad. The BoE could buy sterling with dollars borrowed directly from the U.S. central bank under arrangements first used in response to the global financial crisis in 2008.

Carney has said the Bank would not stand in the way of any exchange rate adjustment but would take the necessary steps to ensure markets remained orderly. It has not commented on whether or how the bank might intervene.

“MONEY TO BE MADE”

A senior source at one London bank said his firm had been building big reserves of sterling to lend out to any clients who get caught short by swirling asset valuations that require them to post extra security deposits with their trading partners.

Foreign exchange brokers such as PhillipCapital UK and Saxo Bank have raised the security deposit they demand from clients in order to trade, a step designed to offset the increased risk that customers get caught out by sharp moves.

One asset manager who declined to be named said his firm had run a test to see if it could cope with a 30 percent fall in sterling. The fund had increased its cash holdings and would have traders working overnight, ready to sell other assets in case it needed to raise more cash in a hurry.

Volatile markets not only put traders under pressure: they test the limits of the technology that underpin the market.

A source at the London Stock Exchange said volatility could spike on June 24 and that it was putting in emergency capacity for transaction reporting to cope with any spike in trading volumes that might otherwise overwhelm its systems.

A spokesperson for LSE declined to comment.

Despite facing a battle against surges in trading volumes, volatile prices and, at times, the absence of enough buyers or sellers to meet demand, some traders are rubbing their hands at the prospect of a night and day of high drama.

“You look forward to days like this,” said one bond trader at a major London bank. “There’s money to be made and lost … You’ve just got to hope you’re on the right side of it, not the one being carried out the door.”

(Additional reporting by Jamie McGeever, Anirban Nag, John Geddie, Dhara Ranasinghe, William Schomberg, Anjuli Davies, Andrew Macaskill, Lawrence White, Simon Jessop, Marc Jones and Maiya Keidan, Editing by Guy Faulconbridge and Philippa Fletcher)

Wall Street falls with oil, worries about global economy

By Caroline Valetkevitch

(Reuters) – U.S. stocks extended losses into a second day on Friday following another drop in oil prices and rising worries about the global economy ahead of Britain’s referendum on whether to stay in the European Union.

Ahead of Britain’s referendum on June 23, a poll showed those in favor of Britain exiting the EU, or “Brexit,” were well ahead of those who favor remaining. The British pound fell against the dollar.

“The inability of the S&P to even hold key resistance tells you the market is not ready to break out to new record highs,” said Adam Sarhan, chief executive of Sarhan Capital in New York.

“The global economy is weak and it can’t handle any major shocks. If Brexit occurs, that’s a major shock.”

The S&P energy index <.SPNY> was down 2.2 percent, leading sector losses.

At 3:14 p.m., the Dow Jones industrial average <.DJI> was down 165.18 points, or 0.92 percent, to 17,820.01, the S&P 500 <.SPX> lost 25.36 points, or 1.2 percent, to 2,090.12 and the Nasdaq Composite <.IXIC> dropped 77.64 points, or 1.57 percent, to 4,880.98.

Investors around the world swapped equities for less risky assets such as U.S. Treasury bonds and the Japanese yen. Yields on government bonds fell globally, to record lows in some cases, while the S&P financial index <.SPSY> was down 1.5 percent.

Jeffrey Gundlach, chief executive of DoubleLine Capital, said Friday investors are dropping risky assets because of falling global GDP expectations, fueled by China’s slowing growth and the intensifying U.S. presidential race.

Some stock investors are betting on a return of the volatility that marked the first two months of the year. The bounce-back in commodity prices that fueled much of the 13.3-percent rally in the Standard & Poor’s 500 index since its February lows is leveling off.

The CME Volatility index <.VIX>, Wall Street’s fear gauge, jumped 17.6 percent.

Among Wall Street’s few bright spots on Friday was Intel <INTC.O>, up 0.4 percent. Bloomberg reported the chipmaker would replace Qualcomm as an Apple <AAPL.O> supplier for some iPhones. Qualcomm <QCOM.O> was down 2.4 percent.

(Additional reporting by Yashaswini Swamynathan in Bengaluru; Editing by Savio D’Souza and Nick Zieminski)

Federal Reserve swimming against global tide of easier rates

Federal Reserve Chair Janet Yellen speaks at the Radcliffe Institute for Advanced Studies at Harvard University

By Jamie McGeever

LONDON (Reuters) – Rarely has the world’s most important and powerful central bank been so isolated.

As the Federal Reserve prepares the ground for another interest rate hike, most other central banks are moving in the opposite direction. And the divergence is widening.

No fewer than 53 central banks have eased monetary policy since the start of last year, almost all by lowering rates. Indeed, the pace of policy easing nearly everywhere is accelerating even as the Fed nears its second hike of the cycle.

This raises several questions. If the global recovery is firmly rooted, why are so many central banks cutting rates? Can the global economy handle rising U.S. rates, and perhaps a stronger dollar that follows? Will the Fed be forced – again – to slow the pace of tightening or even abandon it altogether?

“I can’t ever remember a situation when we’ve seen anything like this before,” said Torsten Slok, chief international economist at Deutsche Bank in New York and a former International Monetary Fund economist.

“When I was at the IMF there was only one global business cycle. In the late 1990s and early 2000s it would have been impossible to imagine the kind of decoupling we have today,” he said.

The divergence can drive business costs and trade flows, lead to outsized exchange rate moves and highlight vulnerabilities in the global financial system, casting doubt on whether the world can cope with relatively higher U.S. borrowing costs and dollar.

Deflationary forces from the oil price plunge to $50 from $115 in the second half of 2014 kick-started central banks into action at the beginning of last year. Fourteen eased policy in January 2015, 11 in February and 12 in March. Denmark’s central bank cut rates four times in as many weeks.

The number of monthly rate cuts dwindled as the year progressed, troughing at three each in August and October, before the Fed delivered its first rate hike in a decade that December.

But even though oil has rebounded 75 percent from its multi-year lows, the pace of monetary easing is picking up. Twelve central banks loosened policy in March, 10 in April and 11 in May. Indeed, 11 central banks have begun easing cycles since the Fed raised rates in December.

At one level, the divergence suggests the U.S. economy is on a stronger footing than the rest of the world.

The U.S. economy is relatively closed, relying less on trade than many others. Imports and exports account for no more than 15 percent of U.S. growth, a proportion that’s more than twice that in most of the major developed and emerging economies.

Yet the Fed has already baulked at raising rates, both before and after its December move, precisely because of its fears over the global spillover effects from more tightening.

CONVERGENCE … BUT WHEN?

Financial markets and emerging economies are the main areas of concern. Both are potentially vulnerable to a rising dollar and higher U.S. bond yields that could follow from higher U.S. rates.

From mid-2014 to the end of last year the dollar rose around 25 percent against a basket of currencies, effectively a tightening of U.S. monetary policy which, according to Goldman Sachs, helped tighten U.S. financial conditions by almost 200 basis points.

There’s a view that this did more damage to the rest of the world through large-scale emerging market capital flight and China’s policy wobbles than the United States, where job growth and economic activity help up reasonably well.

The Organization for Economic Cooperation and Development on Wednesday urged governments to boost spending to lift the world economy out of a “low-growth trap”. It said global growth will meander along at 3 percent this year, its slowest pace since the financial crisis for a second year in a row.

Global conditions, China and the dollar have featured prominently in speeches by Fed chair Janet Yellen and other Fed officials over the last six months, a clear indication they are acutely aware of the global impact of higher U.S. rates.

But with dozens of other central banks in easing mode, conditions have abated around 100 basis points since the turn of the year, helping support global asset prices and giving the Fed leeway to raise rates again.

Francesco Garzarelli, co-head of global Macro and Markets Research at Goldman Sachs, said the Fed effectively participated in the global easing cycle this year by not following up last December’s hike with another increase.

“Markets have seen the Fed stop and go twice, but eventually the hike will come, maybe in June,” he said.

Garzarelli argued that inflation would need to pick up around the world for other central banks to change course. And echoing the OECD, he said the pressure on central banks to loosen monetary policy would lessen if governments shouldered more responsibility for boosting growth via fiscal policy.

“That transition is slowly underway, and the interplay between monetary and fiscal authorities may shift market expectations,” he said.

(Editing by Jeremy Gaunt)

Yen falls vs dollar for second day to near two-week low

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The yen slid to a nearly two-week low against the dollar on Tuesday as risk appetite improved for a second straight session, undermining traditional safe havens such as the Japanese currency.

Repeated verbal warnings from Japan over the weekend and on Tuesday saying it was prepared to step in to weaken the currency has also held off investors seeking to buy the yen at the expense of the dollar. The greenback has struggled recently as the Federal Reserve is on track to raise U.S. interest rates gradually.

“Risk appetite is naturally tied to the belief that we’re in an ultra-low-yield environment and investment managers can’t simply sit here,” said Jeremy Cook, chief economist at payments company World First in London.

“We have to see a move any time we see the slightest bit of positivity, by grabbing yield in emerging markets currencies, for instance.”

Global stock markets were on the upswing overall led by European and Wall Street shares, adding to the positive risk sentiment. [MKTS/GLOB]

In late morning trading, the dollar rose 0.7 percent to 109.11 yen, after hitting a roughly two-week peak of 109.27 <JPY=>. The U.S. currency tumbled to an 18-month low of 105.55 yen last week after the Bank of Japan stood pat on monetary policy.

Finance Minister Taro Aso said on Monday Tokyo was ready to intervene to weaken the currency if moves were volatile enough to hurt the country’s trade and economy. He reiterated that message on Tuesday.

A key economic adviser to Prime Minister Shinzo Abe, Koichi Hamada, also said on Tuesday Japan would intervene in currency markets if the yen rose to between 90 and 95 per dollar.

“There’s definitely the possibility of intervention,” said World First’s Cook. “But I don’t think this will turn the market around. It will be more of a stop-gap measure.”

He added that the only thing that could reverse the yen’s recent strength is fiscal and monetary policy action and any change could happen as early as June.

Meanwhile, speculators were cutting favorable bets on the yen, having piled into the currency in the past few weeks. [IMM/FX]

In other currencies, the euro rose 0.8 percent to a near two-week high of 124.38 yen <EURJPY=>, pulling away from a three-year trough of 121.48 plumbed late last week.

The euro was flat against the dollar at $1.1388 <EUR=>. The dollar index <.DXY> was at 94.171, having hit its highest in nearly two weeks earlier and extending its rise from a 15-month trough struck on May 3.

(Reporting by Gertrude Chavez-Dreyfuss in New York; Additional reporting by Anirban Nag in London; Editing by James Dalgleish)

U.S. goods trade deficit narrows sharply in boost to first-quarter GDP

WASHINGTON (Reuters) – The U.S. goods trade deficit narrowed sharply in March as imports tumbled, suggesting economic growth in the first-quarter was probably not as weak as currently anticipated.

The Commerce Department said in its advance report on Wednesday that the goods trade gap fell to $56.90 billion last month from $63.44 billion in February.

March’s comprehensive trade report, which includes services, will be released next Wednesday.

Goods imports fell 4.4 percent to $173.6 million last month, outpacing a 1.2 percent drop in exports.

The small goods deficit suggested there could be an upside surprise in gross domestic product growth for the first quarter. Economists polled by Reuters have forecast GDP rising at a 0.7 percent annualized rate in the first three months of the year.

“It suggests that first-quarter GDP growth will be much stronger than we previously believed,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

“We now estimate that first-quarter GDP growth was 1.4 percent annualized, whereas we previously thought it would be only 0.8 percent.”

The government is scheduled to publish its advance first-quarter GDP growth estimate on Thursday.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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