Market worries sent Asian equities broadly lower early Friday, as increasingly heated discussions over the U.K.’s exit from the European Union saw the pound plunging against the U.S. dollar.
Japan’s Nikkei Stock Average NIK, -0.31% was down 0.3%, Australia’s S&P/ASX 200 XJO, -0.28% fell 0.3%, Hong Kong’s Hang Seng Index HSI, -0.51% was down 0.5% and Korea’s Kospi SEU, -0.47% slipped 0.5%. Markets in China were closed for the Golden Week holiday.
“The Brexit situation is one of the risk focuses the markets have,” said Ric Spooner, chief market analyst at CMC Markets. “The question is how is it going to play out.”
The pound GBPUSD, -1.2446% fell as much as 6.3% against the dollar to $1.1819 in early Asian trading before recovering, according to Thomson Reuters. The declines have since narrowed to around 1.5%.
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“I initially doubted what I saw on my screen,” said Kenji Yoshii, a foreign exchange strategist at Mizuho Securities in Tokyo, as the pound tumbled in early Asia trading.
The selloff began after French President François Hollande called for tough negotiations with the U.K. as it leaves the EU. Britain wanted to leave the bloc “but doesn’t want to pay,” which was “not possible,” Hollande said in comments cited by Sky News.
The wave of selling Friday follows a rough patch for the pound. Earlier this week, Prime Minister Theresa May set a date to begin leaving the EU The pound has dropped about 4.2% against the dollar so far in October.
In Hong Kong, stocks with large exposure to the U.K. declined markedly, reacting to the pound’s precipitous drop. Banking giant HSBC HSBA, +0.27% HSBA, +0.27% was off 0.9% in Hong Kong trade, while Standard Chartered Bank STAN, -0.95% fell 1.7%.
The pound’s drop also had unexpected benefits for some Japanese financial majors which had hedged their sterling exposure after Brexit. Dai-ichi Life 8750, +1.69% and T&D 8795, +1.68% rose 1.2% and 1.5% respectively.
Still, some analysts said they don’t expect much impact from the pound’s plunge on wider markets, at least in the short term.
“No other currency moved except sterling at that time, so I think the snowball effect to other markets like Asian equities is close to zero,” said Tareck Horchani, deputy head of sales trading for Asia Pacific at Saxo Capital Markets.
Meanwhile, U.S. initial jobless claims, a proxy for layoffs, decreased by 5,000 to a seasonally adjusted 249,000 in the week ended Oct. 1, the Labor Department said overnight Thursday. That was the smallest number of claims since mid-April, when claims hit an almost 43-year low.
The market will now be closely watching for nonfarm payrolls data, out Friday, for further clues as to the timeline for a rate increase.
Elsewhere, the Japanese yen firmed against the dollar, rising 0.2% in midmorning trade. Exporters took a hit, with auto makers in particular drifting down across the board. Toyota Motor TM, -0.54% 7203, -0.78% fell 0.7%, Nissan Motor 7201, -0.69% declined 0.6% and Honda Motor 7267, -0.29% was 0.2% lower.
Banks in Japan also fell after Bank of Japan Governor Haruhiko Kuroda cautioned Thursday that European nations should quickly deal with their banking system problems, comparing the current situation with Japan’s banking crisis in the 1990s.
The Topix banking subindex snapped a four-day winning streak and was recently down 0.9%. Among individual banks, Sumitomo Mitsui Financial Group 8316, -1.20% fell 1.7%, Mitsubishi UFJ Financial Group 8306, -0.42% was down 0.8% and Mizuho Financial Group 8411, -0.29% slipped 0.7%.
In Korea, Samsung Electronics 005930, +0.77% was up 0.4% after it said it expects to report a 5.5% increase in operating profit for the three months ended Sept. 30, despite problems with exploding batteries in its premium Galaxy Note 7 smartphones.