Market still volatile after Brexit vote

BEIJING — The pound fell further against the dollar and U.S. stock index futures slipped on Monday as investors continue to digest the implications of Britain’s historic vote to leave the European Union. But Tokyo’s main share index recovered some ground after Friday’s sharp sell-off.

On Friday, the British pound registered its biggest one-day drop ever, and world stocks saw more than $2 trillion wiped off their value, amid fears that the British vote in favor of what is popularly known as Brexit could plunge the globe back into a recession.

Just after 12 a.m. Greenwich Mean Time on Monday morning, the pound was trading at 1.3430 to the dollar, a decline of 1.8 percent from Friday’s close, while U.S. S&P 500 mini futures were down 0.6 percent at 2,006.

The picture in Asian markets was mixed. Tokyo’s Nikkei 225 index rose 1.3 percent in early trade, in a partial recovery from Friday’s sharp 7.9 percent decline. But MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.5 percent, led by 1.2 percent fall in South Korean shares and a 1 percent fall in Australia.

Central bank chiefs and policymakers around the world tried to calm the jitters, but there remains a distinct possibility that more selling pressure will emerge this week as the shock continues to sink in.

On Sunday, Chinese Finance Minister Lou Jiwei said the vote “will cast a shadow over the global economy.”

“It’s difficult to predict now,” he said at the first annual meeting of the Asian Infrastructure Investment Bank in Beijing. “The knee-jerk reaction from the market is probably a bit excessive and needs to calm down and take an objective view.”

The pound fell as much as 10 percent on Friday to its lowest level against the dollar in three decades, with ratings agencies warning that Britain’s credit rating could suffer, and investors worried that Brexit could undermine London’s role as a global financial center. London’s main stock market index sank nearly 9 percent in early trading on Friday, before recovering to end 3.15 percent lower.

The shock waves reverberated around the globe. European markets fell 7 percent on average, the biggest one-day drop since 2008, with France and Germany not escaping the carnage.

In the United States, stock markets suffered their largest sell-off in 10 months. The Dow Jones industrial average closed down 3.4 percent. The broader Standard & Poor’s 500-stock index closed down 3.6 percent, and the tech-heavy Nasdaq composite index ended 4.1 percent lower.

Britain faces months of political uncertainty after Prime Minister David Cameron, who had called the referendum but campaigned for Britain to stay in the E.U., pledged to step down in October. Opposition lawmakers from the Labour Party attempted to unseat their leader, Jeremy Corbyn, citing his failure to mount an effective campaign for Britain to stay in the E.U., while more than 3 million Britons signed a petition calling for a second referendum.

Adding to the uncertainty, an opinion poll showed a strong majority of Scots now want to break with the United Kingdom, while Nicola Sturgeon, leader of the Scottish National Party, even raised the possibility of blocking the legislation needed for Britain to exit the E.U.

But the economic uncertainty could drag on for years, with Cameron’s successor facing complex negotiations to leave the world’s largest trading bloc and forge new trade deals around the world. Some economists predict the British economy could tumble into a recession next year.

U.S. Secretary of State John F. Kerry urged Britain and the E.U. on Sunday to manage their divorce responsibly for the sake of global markets and citizens.

He is due to meet E.U. foreign-policy chief Federica Mogherini in Brussels and British Foreign Secretary Philip Hammond in London on Monday. He said he would bring a message of support to both capitals.

“The most important thing is that all of us, as leaders, work together to provide as much continuity, as much stability, as much certainty as possible,” Kerry said as he met in Rome with Italian Foreign Minister Paolo Gentiloni. While the United States regrets the Brexit decision, he said, there are ways to “minimize disruption” in the marketplace.

Globally, the recovery from the 2008 financial crisis has been sluggish and fragile, with recurring crises over government debt in Europe, a collapse in oil prices and rising concern about China’s slowdown buffeting financial markets, investment and economic activity. Prolonged uncertainty over Brexit is not going to help.

On Friday, finance ministers and central bank chiefs from the Group of Seven nations acknowledged that the Brexit vote could have “adverse implications for financial and economic stability” but expressed confidence in the health of the banking system and vowed to work together to ensure that markets continued to function smoothly. (G-7 nations include the United States, Canada, Italy, France, Germany, Japan and Britain.)

Mark Carney, governor of the Bank of England, said the central bank had taken “all the necessary steps” to prepare for the aftermath of a vote to leave the E.U., adding that British banks have been stress-tested “against scenarios more severe than the country currently faces.”

In Asia, policymakers pondered action to stabilize markets.

“Speculative, violent moves have extremely negative effects,” said Tomomi Inada, policy chief of Japan’s ruling Liberal Democratic Party, according to the Nikkei daily. “If necessary, the government should not hesitate to respond, including currency intervention.”

South Korea’s finance minister also said he feared that markets will remain volatile throughout negotiations on the British exit, while Hong Kong’s finance chief promised that his government was keeping a close eye on developments after what he described as “a big surprise” from the referendum result, the Reuters news agency reported.

But global authorities’ room to maneuver is limited. Central bankers have been flooding the global economy with easy money for years in an attempt to jump-start the recovery, and interest rates around the world remain at very low levels.

In the United States, the fallout from Britain’s decision could reduce growth as much as 0.6 percent next year, analysts at Morgan Stanley estimated. The dollar spiked nearly 2 percent against a basket of currencies on Friday, though it remains below this year’s peak. That makes it more expensive to export American goods, and the relative strength of the dollar has been weighing on the U.S. recovery for two years.

Some analysts even began speculating that the Federal Reserve would have to cut interest rates, just six months after raising them for the first time since the recession amid hopes that the U.S. recovery had solidified. At the very least, economists said, the Fed is likely to remain on hold on the issue of rates when it meets again next month.

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Carol Morello in Washington contributed to this report.