Will the outcome of the UK referendum “calm” the financial markets?

A view inside the London Stock Exchange.
© European Union , 2015 / Source: EC – Audiovisual Service /
Location: London – Stock Exchange. Photo: Jack Taylor

Just one day left for both the Remain and Leave campaigners to persuade the undecided Britons to vote in their favor promoting what is best for their country. The world is about to finally find out what will be the outcome of the UK referendum with the reports and polls already showing reverse results compared to last week on the aftermath of the murder of the British MP Jo Cox.

However, quite a few undecided voters seem to have made up their minds according to recent polls supporting the Remain campaign and forcing the financial markets to rise. As this newspaper reported last week with its article “Brexit update: Leave campaign leads race but undecided voters will determine the outcome of the EU referendum”, the British people are most likely to vote “in” the EU in order to keep their status quo intact. The latter would certainly relieve the rest of the world which has been worrying about a possible Brexit and its dreadful consequences.

Polls and surveys show ‘Bremain’

Survation opinion telephone poll organized for the Sunday Mail gave a 3% lead to the Remain campaign. What is more, the internet poll from YouGov showed similar results giving small chances to the Brexit event.

It needs to be underlined that both polls were conducted after Cox’s murder. Opinion polls that were released before that tragic event were showing a neck and neck race (Opinium for the Observer) or that the Leave campaign was winning (YouGov for the Sunday Times). Furthermore, the betting companies Betfair and Ladbrokers foresee a propability of 73% that Britain will remain in the bloc.

Besides, Europe-wide survey published by Bertelsmann Stiftung last Monday shows that most EU citizens want the UK to stay in the EU. More specifically, 54% of the participants are expressed positively while 21% thinks that Britain should leave the EU. It is also remarkable that 25% of the French are not supporting the idea of the UK being a member of the EU and 33% are not sure.

Brexit’s impact

SyndicateRoom, a UK-based equity platform, has revealed that a Brexit vote would risk two trillion pounds of personal investment affecting UK businesses and households. Goncalo de Vasconcelos, CEO and co-founder of SyndicateRoom underlined that: “The research reveals that UK households would be adversely affected by a Brexit vote. Our findings demonstrate that in times of uncertainty, investors should give added attention to portfolio diversification, given the evident risk in the property market.”

Financial markets climb

The recent change in the referendum lead has caused the financial markets to go up. The sterling has raised against the dollar and the euro this week and will keep on doing so as the Bremain result seems more likely. The exchange rate of the gbp/euro has climbed to 1.3029 while the gbp-usd exchange rate jumped to 1.4737. The latter was a result of the latest polls where it was shown that the UK is likely to remain within the EU.

On the equity side, the same is happening at all major stock exchanges which are experiencing gains. The London Stock exchange represented by the FTSE 100 closed higher yesterday at 6,226.55 together with Germany’s DAX 30 (+0.54%), France’s CAC 40 (+0.61%) and Stock Europe 600 (+0.70%). Also, the U.S. and Asian stocks and shares rose too showing that the alternation in the outcome of the referendum is highly affecting the entire world economy.

The markets will keep on volatizing

The next days will be extremely volatile for the financial markets and all investors and traders will be trying to make money and hedge their positions by minimising their risk. Thus, whatever the outcome of the referendum, there will be a short-term severe reaction which will cause turbulences to the markets.

The chair of the U.S. Federal Reserve mentioned on the issue: “The market reaction could result in a risk off sentiment that we would see impact on the financial markets”.

However, the exchange rates and stocks will probably stabilize in the medium and long run absorbing the consequences of the EU referendum.

ECB is ready to act and political leaders convene

The governor of the European Central Bank (ECB), Mario Draghi, mentioned after ECB’s executive board meeting that the ECB has taken all measures to deal with possible Brexit consequences to the European economies and financial markets. Mario Draghi said yesterday: “We’ve done all the preparation that is necessary now. It was very difficult to foresee the impact and various dimensions of how the vote in the UK will impact markets and the economies of the eurozone”.

In addition, the president of the European Union, Donald Tusk, the President of the European Commission, Jean-Claude Juncker and the Dutch Prime Minister Mark Rutte will hold a meeting on Friday to discuss about the outcome of the referendum.

The importance of this referendum is substantial but it remains to be seen whether Europe and the world is actually ready for an exit that was never actually predicted to happen.