Britain's referendum leaves European stock markets in turmoil

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Britain's vote to leave the European Union sent shock waves across European stock markets on Friday.

The result came as a surprise to European stock markets, which saw slumps in nearly every major index. The Euro Stoxx index plummeted by 8.62 percent, France CAC 40 down by 8.04 percent, FTSE 100 by 3.2 percent and Germany's DAX index 6.82 percent.

Meanwhile, Spain's IBEX-35 plunged 12.35 percent at Friday's closing time, a record one-day drop in its history. The result of the British referendum was met by an immediate fall in share values on the Spanish stock market with Spanish banks seeing up to about 20 percent knocked off their shares.

Commenting on the result, Deutsche Bank AG CEO John Cryan said in a written statement that it was not a good day for Europe and negative on all sides.

Stock markets in Europe were hit hard since the opening of the trading day. The DAX index opened at 9,237.62 points, nearly 1,000 points or 10 percent lower. At one point, the FTSE 100 index dropped by 8.7 percent. The slump is so rare in history that some people call it another "Black Friday."

The pound recorded a loss of 8 percent, the biggest in history. The euro also fell by a relatively smaller margin to the U.S. dollar.

The risk aversion sentiment of investors put pressures on so-called "safe haven" assets. Switzerland's central bank on Friday confirmed that it had to intervene in the foreign exchange market to weaken its currency Swiss franc.

The yields of the sovereign bonds fell, with 2-year German bonds down by 8.6 basis points, 2-year French bonds down by 6.6 basis points. The yield of 2-year UK bonds went down by 26 basis points.

The European Central Bank (ECB) took note of the turbulence on the financial market and issued a statement. With an aim to stabilize the market, the ECB said it stands ready to provide additional liquidity, if needed, in euro and foreign currencies.

Banks suffered great losses in their share prices. Deutsche Bank fell by 14.13 percent and Commerzbank lost 12.9 percent. The ECB insists that the euro area banking system is resilient in terms of capital and liquidity.

Although the market has been "taken by surprise," the foreign exchange market has not shifted into a panic mode, said Commerzbank chief economist Joerg Kraemer in a note on Friday.

The response of the market was "strong but not panicky," he said.

According to Kraemer, the main concern for the British economy in the negotiations of Brexit will be retaining access to the EU single market.

The Brexit will also cost the financial hub London a lot. According to a survey conducted by Mannheim Centre for European Economic Research among 200 financial analysts earlier, 90.3 percent of survey participants expect a negative or even very negative outcome for London.


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