The polls for the UK referendum close within a couple of hours, but the market is already trading as if a “Remain” outcome has already been determined. A strong risk-on rally is evident, with commodity currencies leading the charge and the yen under pressure.
Increased confidence of a Remain vote has driven equity markets higher, with the S&P500 up a little under 1% and within spitting distance of posting a record high. Europe’s Stoxx 600 index rose by 1.5% and is now up 7.8% for the past week, recovering all of the previous week’s losses.
The strong risk-on rally this week limits the upside from here on any “Remain” outcome and sets the scene for a much larger downward correction on a shock “Leave” outcome.
The NZD has blasted through the 0.72 handle a day earlier than expected and currently trades at 0.7240, up 1% for the day and close to its highs for the session. The AUD has behaved in a similar fashion, up 1.3% and through 0.76. For the NZD there is little technical resistance ahead, a reflection of its recent strength, but on fundamental factors the currency is looking really stretched. In illiquid market conditions over the next 12-18 hours, anything seems possible. A “Leave” vote could see the 7% gain seen for the month so far evaporated instantaneously.
GBP reached as high as 1.4947 overnight but has since sunk back to 1.48, the level it spent much of the local trading session yesterday. On a TWI basis, the pound trades at its highest level for the year, which is remarkable ahead of the binary decision. This week it feels like observers have been competing for “who can predict the biggest fall in GBP in a Leave vote”, with estimates ranging from 10% to 30%.
Not surprising in the risk-on environment, Yen has collapsed by 1.3%, with USD/JPY up through 106 overnight and currently a little below that. EUR has been swept up in the premature “Remain” euphoria and trades at 1.1350, after earlier breaching the 1.14 handle.
Polling in the UK referendum closes at 9am NZ time and counting will begin soon after. By 11:30am the first results should be coming through and by 12:30pm we’ll have 26 out of 399 counting officers having reported for their region. This might be enough to gauge the likely overall outcome, depending on how close the vote is. If it is a very tight race, then we might not know the outcome until around 5pm. Best of British to all.
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