Europe close: Stocks tumble after Brexit vote; FTSE outperforms

The UK’s vote to leave the European Union sparked a bloodbath in European equity markets on Friday, sending the pound tumbling against the dollar and weighing on oil prices, while gilts and gold surged as investors fled to safety.

The benchmark Stoxx Europe 600 index ended down 6.9%, suffering its biggest losses since 2008, while Germany’s DAX closed off 6.8% and France’s CAC 40 ended 7.9% weaker.

Peripheral European markets posted the largest declines, however, with Italy’s FTSE MIB and Spain’s IBEX 35 both down 12%.

In the UK, the FTSE 100 fell 2.8%, having heavily pared losses as the day wore on, with some investors stepping in to pick up a bargain. The weaker pound was also likely to have been behind the FTSE’s outperformance of its European peers given that many of the large cap companies derive a large chunk of their revenues from abroad or report in US dollars.

The FTSE actually managed to end higher for the week despite Friday’s heavy losses.

Results of the UK’s EU referendum showed a Leave win at 52%, with Remain at 48%. London, Northern Ireland and Scotland backed Remain, while the rest of England and Wales opted to leave.

Michael Hewson, chief market analyst at CMC Markets, said: “The extent of the plunge was exacerbated by a market positioned in completely the wrong way as investors chose to place their faith in the pollsters, and threw caution to the winds, by betting big on a vote to Remain.”

On Thursday, stocks ended higher, with market participants betting that the UK would vote for the status quo after opinion polls and bookies’ odds put the Remain campaign in the lead.

The pound tumbled in early trade on Friday, dropping to its lowest level against the dollar since 1985, trading as low as $1.3229. By the time of the European close, sterling was trading at $1.3645.

As investors fled to safety, gilts and gold surged, but oil prices tanked.

UK gilt yields – which move inversely to prices – hit record lows, while gold rallied 4% to settle at its highest level in two years.

Oil prices settled lower, with West Texas Intermediate down 1.1% to $48.85 a barrel and Brent crude down 4.3% to $48.73.

UK Prime Minister David Cameron resigned on Friday, saying the UK needed “fresh leadership” to “steer the country” out of the EU. "There is no need to have a precise timetable today, but in my view we should have a new PM in place in time for the Conservative Party conference in October,” Cameron said.

"A negotiation with the EU will need to begin under a new PM, and I think it's right that this new PM takes the decision about when to invoke Article 50.”

Former London Mayor Boris Johnson was the favourite to succeed Cameron.

Unsurprisingly, banks took an absolute battering, with the Stoxx 600 sub-index for the sector down more than 14%.

In London, shares in Lloyds, Royal Bank of Scotland and Barclays ended down between 16% and 21%, suffering whopping losses but off their lows. It was a similar story for housebuilders.

There were a few risers in London, however. Defence and aerospace firm Rolls-Royce – which generates two thirds of its revenues and three quarters of its order book outside the EU – racked up some healthy gains, followed closely by pharmaceutical groups GlaxoSmithKline and AstraZeneca.

Gold-related shares also enjoyed a strong performance as the yellow metal advanced.

The Bank of England said on Friday that it was “monitoring developments closely” and had undertaken "extensive contingency planning and is working closely with HM Treasury, other domestic authorities and overseas central banks”.

In addition, the European Central Bank pledged to provide additional liquidity, if needed, in euro and foreign currencies.