World stock markets extended losses from a day earlier yesterday as investors grappled with volatile oil prices that again tumbled and the pound sterling hit near seven-year lows.
Uncertainty over which way British voters will jump in a looming referendum on European Union membership weighed on markets and will likely do so for some time to come, analysts said.
Added to the mix are concerns about the global economy, with the overall result that emphatic losses marked the eurozone’s main indices Wednesday that set the tone for US stocks.
In London, the FTSE 100 down 1.6% at 5.867.18 points; Frankfurt - DAX 30 fell 2.64% at 9,167.80 points and Paris - CAC 40 down 1.96% at 4,155.34 points at the close yesterday.
Investors seemed especially disappointed after Iran’s oil minister on Tuesday dismissed an output freeze deal between the world’s top two producers Saudi Arabia and Russia as “a joke”.
“US stocks are extending yesterday’s drop following losses in Asia and amid a European sell-off, with oil prices remaining volatile on disappointing production cut comments out of Iran and Saudi Arabia and a mixed government oil inventory report,” analysts Charles Schwab said in an investors’ note.
Shares in Frankfurt led the pack, dropping more than 2.6%, after a session that also saw periphery counterparts Madrid and Milan shed more than3% at one point.
US stocks were dragged down by another sharp decline in oil prices while new data revealed that US new-home sales slumped in January more than expected, despite a sharp drop in prices.
“Eurozone indices are going to suffer under the same Brexit fears currently plaguing the pound and the FTSE,” said Connor Campbell, financial analyst at Spreadex trading group, referring to a possible exit by Britain from the EU.
The pound slumped to $1.3913 at one point—the lowest level since March 2009.
Analyst John Higgins, of Capital Economics, said uncertainty was key and would go on plaguing the British currency until the vote was done and dusted.
“We estimate that sterling would rebound from $1.39 to $1.50 against the dollar if the UK voted today to remain a member of the EU,” he wrote in a note.
“But if the vote were to leave, we think the exchange rate might fall swiftly to $1.20.”
As Britain prepares for the June 23 referendum on EU membership, British Prime Minister David Cameron has warned that a departure would threaten its economic and national security.
But London Mayor and Conservative rival Boris Johnson has dealt a blow by backing a so-called Brexit despite Cameron winning a deal on EU reforms.
The pound has been struggling for some time, though.
“Unsurprisingly, the concerns for the global economy have continued to have disastrous consequences for the pound, which often performs poorly in a risk-off environment,” said Phil McHugh, at trading group Currencies Direct.
Asian bourses earlier saw Tokyo stocks weighed down by the strength of the yen which is seen as a haven asset.
But Shanghai closed up almost 1% yesterday, reversing losses from earlier in the day, on expectations of economic reform pledges at an upcoming annual meeting of lawmakers.
Ahead of a meeting of G20 finance ministers and central bank chiefs starting Friday in Shanghai, there have been calls for increased fiscal support as authorities grapple with reduced monetary leeway. Japan and the eurozone have already seen negative interest rates.