This coming Thursday, 23 June 2016, the United Kingdom will vote on a historical referendum deciding on the status of its European Union (EU) membership. For the last 2 years since 2014, the UK parliament, led by acting Prime Minister David Cameron have promised a public referendum on Britian's EU membership. Britain's relationship with Europe has always been one of contention, and many have long been awaiting this once in a generational lifetime opportunity to voice their opinions through the democracy of a vote.
The global financial markets have also been eying this key event risk for some time, and since events have heated up recently as we enter the final week before the ballots are cast, there has never been a more important 4 days for English markets (that's including the pound sterling, GBP) since the "Black Wednesday" of 1992, the day the Bank of England was broken by the markets.
We plan to cover the final few days leading up to the so called "Brexit" vote, or short for "Britian-Exit". Like how we covered the also historical Greek crisis exactly a year ago in June 2015 in a 3-part series (Part I, Part II, Part III), we want to provide a comprehensive anchor point for our readers.
This time, we will be incorporating full visuals into our updates, opinions, and analysis. As news and events are expected to develop very quickly, more current updates will first be published on our official Facebook Page, before being added to this catalogue. As such, we recommend you to follow us on our social media accounts to get the latest updates in a timely fashion.
We start our timeline on 6 June at the end of this catalogue, and chronologically progress through time with the latest updates, news, and analysis right at top of the following section. We hope you enjoy it!
Post Brexit Analysis & Commentary
Now that the unthinkable has happened, and the UK has spoiled the European party, it's time to post one last update on this piece documenting what the world really believes had and will happen with regards to the financial markets. Like us, many market participants are still digesting all that happened in the past 36 hours. It's not an easy task because of the scale of market movements.
Brexit isn't an isolated event. It will have huge ripple effects all across Europe, and likely cause a seismic shock to the global economy for months to come. Coming to terms with this universe of issues will take time.
S&P downgrades UK's credit rating
Well, that didn't take long. As reported, UK CDS spreads have widened (higher default risk) post Brexit even as gilt yields plunge to record lows on bid for safety. The economic and financial repercussions of leaving the EU cannot be undermined; and many have earned about the consequences of a Brexit. It is time for the UK to face the music, and sober up to reality.
From the S&P Credit Rating Update publication:
Ratings On The United Kingdom Lowered To 'AA' On Brexit Vote; Outlook Remains Negative On Continued Uncertainty
- In the nationwide referendum on the U.K.’s membership of the European Union (EU), the majority of the electorate voted to leave the EU. In our opinion, this outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the U.K. We have reassessed our view of the U.K.'s institutional assessment and now no longer consider it a strength in our assessment of the rating.
- The downgrade also reflects the risks of a marked deterioration of external financing conditions in light of the U.K.’s extremely elevated level of gross external financing requirements.
- The vote for “remain” in Scotland and Northern Ireland also creates wider constitutional issues for the country as a whole.
- Consequently, we are lowering our long-term sovereign credit ratings on the U.K. by two notches to 'AA' from 'AAA'.
- The negative outlook reflects the risk to economic prospects, fiscal and external performance, and the role of sterling as a reserve currency, as well as risks to the constitutional and economic integrity of the U.K. if there is another referendum on Scottish independence.
On June 27, 2016, S&P Global Ratings lowered its unsolicited long-term foreign and local currency sovereign credit ratings on the United Kingdom to 'AA' from 'AAA'. The outlook on the long-term rating is negative. We affirmed the unsolicited short-term foreign and local currency sovereign credit ratings on the U.K. at 'A-1+'.
We also lowered to 'AA' from 'AAA' our long-term issuer credit rating on the Bank of England (BoE) and the ratings on the debt programs of Network Rail Infrastructure Finance PLC. We affirmed the short-term ratings on the BoE and Network Rail Infrastructure Finance debt programs at 'A-1+'. The outlook on the long-term rating on the BoE is negative.
As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on the United Kingdom, are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, includingpublication in accordance with a pre-established calendar (see "Calendar Of 2016 EMEA Sovereign, Regional, And Local GovernmentRating Publication Dates," published Dec. 22, 2015, on RatingsDirect). Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasonsfor the deviation. In this case, the reason for the deviation is the U.K.'s referendum vote to leave the EU. The next scheduled rating publication on United Kingdom will be on Oct. 28, 2016.
The downgrade reflects our view that the “leave” result in the U.K.’s referendum on the country’s EU membership ("Brexit") will weaken the predictability, stability, and effectiveness of policymaking in the U.K. and affect its economy, GDP growth, and fiscal and external balances. We have revised our view of the U.K.'s institutional assessment and we no longer consider it to be a strength in our assessment of the U.K.'s key rating factors. The downgrade also reflects what we consider enhanced risks of a marked deterioration of external financing conditions in light of the U.K.’s extremely elevated level of gross external financing requirements (as a share of current account receipts and usable reserves). The Brexit result could lead to a deterioration of the U.K.’s economic performance, including its large financial services sector, which is a major contributor to employment and public receipts. The result could also trigger a constitutional crisis if it leads to a second referendum on Scottish independence from the U.K.
We believe that the lack of clarity on these key issues will hurt confidence, investment, GDP growth, and public finances in the U.K., and put at risk important external financing sources vital to the financing of the U.K.’s large current account deficits (in absolute terms, the second-largest globally behind the U.S.). This includes the wholesale financing of the U.K.’s commercial banks, about half of which is denominated in foreign currency.
Brexit could also, over time, diminish sterling's role as a global reserve currency. Uncertainty surrounding possibly long-lasting negotiations around what form the U.K.’s new relationship with the EU will look like will also pose risks, possibly leading to delays on capital expenditure in an economy that already stands out for its low investment/GDP ratio.
Detailed negotiations are set to begin, with a great deal of uncertainty around what shape the U.K.'s exit will take and when Article 50 of the Lisbon Treaty will be triggered. While two years may suffice to negotiate a departure from the EU, it could in our view take much longer to negotiate a successor treaty that will have to be approved by all 27 national parliaments and the European parliament and could face referendums in one or more member states. While some believe the U.K. government can arrive at a beneficial arrangement with the EU, others take the view that the remaining EU members will have no incentive to accommodate the U.K. so as to deter other potential departures and contain the rise of their own national eurosceptic movements.
In particular, it is not clear if the EU--the destination of 44% of the U.K.'s exports--will permit the U.K. access to the EU’s common market on existing (tariff-free) terms, or impose tariffs on U.K. products. Future arrangements regarding the export of services, including by the U.K.’s important financial services industry, are even more uncertain, in our view. Given that high immigration was a major motivating issue for Brexit voters, it is also uncertain whether the U.K. would agree to a trade deal that requires the country to accept the free movement of labor from the EU. The negotiation process is therefore fraught with potential challenges and vetoes, making the outcome unpredictable.
We take the view that the deep divisions both within the ruling Conservative Party and society as a whole over the European question may not heal quickly and may hamper government stability and complicate policymaking on economic and other matters. In addition, we believe that Brexit makes it likely that the Scottish National Party will demand another referendum on Scottish independence as the Scottish population was overwhelmingly in favor of remaining within the EU. This would have consequences for the constitutional and economic integrity of the U.K. There may be also be similar constitutional issues around Northern Ireland.
These multiple and significant challenges will likely be very demanding and we expect them to take precedence over macroeconomic goals, such as maintaining growth, consolidating public finances, and the importance of finding a solution to worsening supply bottlenecks in the U.K. economy. Lack of clarity while negotiations ensue will also significantly deter private investment.
The U.K. benefits from its flexible open economy and, in our view, prospered as an EU member. We believe that the U.K. economy was able to attract higher inflows of low-cost capital and skilled labor than it would have without the preferential access that EU membership delivers. We consider that significant net immigration into the U.K. over the past decade helped its economic performance. EU membership also helped enhance London's position as a global financial center.
We believe that the U.K.'s EU membership, alongside London's importance as a global financial center, bolstered sterling as a reserve currency. When we assess the U.K.'s external picture, we incorporate our view that the U.K. benefits from its reserve currency status. This leads us to make a supportive external assessment, despite the U.K.'s very large external position in terms of external liabilities and external debt, on both a net and gross basis. Under our methodology, were sterling's share of allocated global central bank foreign currency reserve holdings to decline below 3%, we would no longer classify it as a reserve currency, and this would negatively affect our external assessment. Sterling's share was 4.9% in the fourth quarter of 2015, according to International Monetary Fund data.
Furthermore, since having joined the European Community 43 years ago, the U.K. has attracted substantial foreign direct investment (FDI), which has helped to solidify its role as a global financial center. High FDI inflows increased the capital stock in an economy that is notable for its low investment levels; FDI was an estimated 18% of GDP in 2015. This underscores the high importance of FDI inflows for the growth prospects of the U.K. economy.
About two-thirds of all FDI into the U.K. represents investment in the financial services sector. Most investment into the financial services sector is channeled into London. The U.K. financial system, measured by total assets, stands at about 4.5x GDP and foreign banks make up about half of U.K. banking assets on a residency basis. Foreign branches account for about 30% of total U.K. resident banking assets. Brexit could lead financial firms, especially foreign ones, to favor other destinations when making investment decisions.
Net FDI is also a major source of financing for the U.K.'s current account deficit, which has persisted without interruption since 1984. The current account deficit exceeded 5% of GDP in both 2014 and 2015. We believe the “leave” vote will put pressure on sterling and could improve net exports, in particular by weakening imports as growth decelerates, leading to a faster narrowing of the current account than if the U.K. had stayed in the EU. For this reason, we forecast the current account deficit to average 3.4% in 2016-2019 compared to our April forecast of 4.5%, though we would add that past episodes of sterling weakness largely did not necessarily improve the U.K.’s merchandise deficit, which last year was 6.7% of GDP. The U.K.’s services sector ran a net surplus of almost 5% of GDP last year, but to the extent that financial services may face more difficult access to EU markets (subject to the outcome of negotiations with the EU), that position may also worsen.
Nevertheless, we see the U.K.'s high external deficits as a vulnerability, and we view an EU departure as a risk to financing sources. The U.K.’s gross external financing needs (as a share of current account receipts and usable official foreign exchange reserves) is the highest among all 131 sovereigns rated by S&P Global Ratings. At over 800%, this ratio stands at over twice the level of the G7 runners-up (U.S. and France are under 320%).
The U.K. economy had been recovering robustly since 2007. Over the past two years, it has grown faster than any economy in the G7, and faster than almost all the large European economies, including Germany. However, given the uncertainty and fall in investment tied to the “leave” vote, we are forecasting a significant slowdown in 2016-2019, with GDP growth averaging 1.1% per year (compared to our April forecast of 2.1% per year). A fall in investment will affect growth, job creation, private sector wage growth, and consumer spending.
At 84% of GDP (2016 estimate), the U.K.'s net general government debt ratio remains high. Since the 2008 financial shock, fiscal consolidation has been substantial--primarily in the form of cuts to general government expenditure. Fiscal consolidation will become harder to achieve given the slower growth, as well as in the face of rising risks of discretionary fiscal easing to arrest the economic slowdown. In our opinion, the decision to leave the EU raises further the fiscal challenges of meeting already ambitious targets, as weaker consumption and investment, possibly via a correction in the U.K.’s highly valued housing market, would take a toll on tax receipts. Over the medium term, a reduction in employment and earnings in the financial services sector could further undermine public finances. Since Brexit, plans to start the sale of shares in government-owned banks may have to be postponed owing to economic uncertainty.
We view the U.K.'s monetary and exchange rate flexibility as a key credit strength. During the financial crisis, it enabled wages and prices to adjust rapidly, relative to trading partners, we expect it to provide as rapid an adjustment again. Exchange rate adjustments can help to broadly maintain competitiveness. The U.K. authorities have drawn on the flexibility afforded by its reserve currency, and this has benefited GDP growth and public debt sustainability, in our view. As mentioned earlier, if the U.K. were to lose its reserve currency status, we would view this as a significant negative.
Despite the uncertainty around Brexit, we believe that the U.K. will continue to benefit from its large, diversified, and open economy, which exhibits high labor- and product-market flexibility, and enjoys credible monetary policy. Additionally, the U.K. benefits from deep capital markets and a globally competitive financial sector.OUTLOOK
The negative outlook reflects the multiple risks emanating from the decision to leave the EU, exacerbated by what we consider to be reduced capacity to respond to those risks given what we view as the U.K.’s weaker institutional capacity for effective, predictable, and stable policymaking.
We could lower the rating should we conclude that sterling will lose its status as a leading world reserve currency; that public finances will deteriorate; or that GDP per capita will weaken markedly beyond our current expectations (see "GDP Per Capita Thresholds For Sovereign Rating Criteria," published on Dec. 21, 2015). In addition, we could lower the rating if another referendum on Scottish independence takes place, or other significant constitutional issues arise and create further institutional, financial, and economic uncertainty.
We would revise the outlook to stable if none of the aforementioned negative developments occur.
Friday is the appetizer for Monday
From RBC's Charlie McElligott:
The early macro trade has been focused on two things:
- The outstanding performance of credit early (even before the stock rally as HY, IG and Converts all saw size “offers wanted” around Street from real $ and credit HFs) and;
- Monetization of downside hedges from select macro funds in stocks and GBP (and then seeing those same accts turn and buy upside calls) as the driver of this phenomenal 60-plus handle rally in Spooz off the lows / pairing-back of half the collective loss in liquid EU equities indices / 500 pip recovery in GBP off lows.
Same with VIX as a derivative of that too, where profit-takers in their upside vol bets have made the VIX a one-way trade lower today (or V2X which is EU’s version of VIX and was +32% at one point today….now just +6%). Similarly with regards to “monetization of winners,” USTs options are seeing ‘like’ flows—extremely profitable liquidation of TY calls, contributing the the move higher in UST 10Y yields +17bps off the lows).
There are some who are pounding-table for another leg-down in risk, but now that we’ve just cleared the first hour, I’m seeing INCREASED client activity (after almost consensual “avoiding the noise of the cash open” feedback earlier), and it’s significantly “better to buy.” We’re now running at 280% of the 20adv (notional) on the US cash desk, and sit at 64.2% notionally better to buy.
By the way, the longer we go on without seeing a “rollover” in Spooz, you’ll see further capitulation from overnight futures shorts who are already way upside-down.
I do feel that Monday is where we’re going to see a truer-look at “where the bodies are buried” and a more accurate “price discovery” process than what we’re seeing today (as we’re washing out all the delta one flows which are dwarfing client trading)…lots of discipline being displayed thus far, with low turnovers and folks not chasing.
- FTSE (UKX, benchmark equities index) is an absolute CHAMP right, trading -8.7% within the first 10 minutes of the open before clawing-back to all but -1.9% at ‘highs.’ Wrap your head around this: week-to-date, UKX is up over 2.8%! What’s the driver of today’s massive rally? People are getting their arms around the impact of this extraordinarily weak Sterling as a backdoor stimulus for exporters (ironic the power of what a departure from the EU can do vs what x # of kagillions of QE purchases couldn’t get done) and the inevitable rate cut from the BoE.
- What I have to continue keeping one eyeball on is SX7E (EU banks index); the thing cannot get off mat. And if that can’t get off the mat, peripheries (and their sovereign debt) won’t either, as we re-enter the EU-crisis-era “Doom Loop” where widening sovereign spreads drag down the banks who are stuffed to the gills with them….vicious cycle, what else is new. FWIW, as I write and we’ve had this massive bounce in equities, Italian stocks (FTSEMIB) are back at their lows. This will likely be the next “hot zone” as we begin playing EU existential dominos (Spanish elections Sunday too).
- My model Equity L/S portfolio is -285bps today. That is NOT cool. Elsewhere, from a thematic or factor perspective, we see the implications we spoke about earlier of the RAGINGLY STRONGER DOLLAR smashing the reflation / cyclical beta trade (value, energy, beta all struggling, while momentum mkt neutral works with defensive longs + and fins / biotech / energy).
Stories of huge losses making the rounds as sleepless nights taunt traders
From RBC's Charlie McElligott:
Correlations go to zero on Brexit napalm
Pockets of risk are notably higher off the initial "shock" levels seen last night (i.e. GBP trading back to 1.388 last from 1.323 low / JPY to 103.1 last from 99.0 low / FTSE from -8.7 to now “just” -5.1% / SPX at worst -120 handles to 1999, now 2032 last), as tactical market participants front-run expected liquidity injections and interventions from CB's to either ‘dip buy’ for a trade, or sell into.
Nonetheless, the psychological damage overnight is simply jarring, and the long-term implications of the first domino in a potential "unwind" of globalization / shift to populism / protectionism / nationalism (see every nationalist right party calling for referendums throughout their respective countries in the EU) plays-out against a trading world lulled to sleep by the siren-song of "free carry," low vol and leverage. As stated last week, when people, goods and money are unable to move freely, it's a global growth negative, period.
Just...wow. The "left tail" scenario has played-out, and now, we are in the midst of a real-time "Minsky Moment" in Europe.
The UK has voted to leave the EU, shocking pollsters, book-makers, statisticians and--even just a handful of hours ago--the universal "market" embrace of an assumed "remain" scenario. I was part of that complacency. On account of this “all clear” view, many market participants had spent much of this past week "grossing back up."
The market carnage is staggering with regards to the violence seen in such a short period of time, as the stress and convexity of the move is exacerbated by the inability and unwillingness of market-makers to provide liquidity. There are few bodies capable of catching the falling knife right now, which has been the exact "unintended consequences" of post-crisis regulation that banks and brokers have warned about. Markets could SURE use that dealer balance sheet, prop desk or stat arb market-making book to mitigate such exaggerated price-action, i.e. JPY moving 450pips in about 7 seconds last night when it made absolute lows.
Moves of this magnitude are pure reads on "force outs"...that wasn't discretionary selling / covering, as NOBODY was positioned for this. The tide has "gone out"...and we are about to see who's been swimming naked.
It's "game over" for anybody out there who was short duration. CTA's / systematic trend strategies / managed futures funds / Crude and FX carry traders--all of whom exist on leverage--here comes "Mr Margin" calling on your risk longs. Obviously the "long cyclical beta" equities trade, which has been the basis of the recovery off the February lows, is about to come unglued when the US opens. Bank options dealer desks who by definition are "short volatility," as well as many clients who've made a living shorting vol in the post-GFC era as well--there are going to be some "lights out" stories making the rounds on huge losses... very scary stuff.
LARGEST OVERNIGHT MOVERS ON Z-SCORE BASIS:
EU-centric obviously, but the drag-down implications of the Dollar move higher (see: crude and EMFX) are very troubling.
And don’t sleep on EU credit, where both SubFin and Xover are seeing 3.5+SD moves (SubFin just behind Lehman for all-time largest % one day move).
WHAT IS MOST “AT RISK”?:
EU periphery equities (BANKS BANKS BANKS SX7E now -16.3% on day and 32.7% YTD, along w/ consumer discretionary), Eu peripheral Bonds (BTPs and Bonos), EU FX (Sterling resets to a new level in light of current acct deficit, Euro resets on existential risk uncertainty freezing the entire union economy), EMFX breakdown on USD move and leveraged deployed in space, and flight to safety in Yen and Franc crushing Japanese and Swiss exporters and thus local stock markets.
WHERE DOES THE $ GO?:
Gold and all things US—UST’s, USD, even US equities (not immediately of course, but eventually on relative basis) seeing enormous safe haven bid. "Low vol" / "anti-beta" market neutral / defensive sectors like utes, staples, telco and sleepy healthcare will obviously outperform against aforementioned cyclicals, beta, consumer discretionary and financials.
WHAT MIGHT BE DIP-BUYABLE A LITTLE CLOSER TO THE “HOT ZONE”?:
There will be support "at a price" on the ability for ECB to intervene in EU credit and periphery sovereigns (although CDS will u/p cash bonds)…but that is real “Kevlar gloves” trading with tight stops.
RETURN OF THE DEFLATION TRADE:
Dollar strength should be absolutely crushing for crude / commods / EM, as the deflation trade spectre rears its head again. Difficult to touch any of this stuff for a long time as I anticipate persistent weakness in Euro continuing to help strengthen the Dollar.
So is there any silver-lining here? Most likely, all the "bad news" is out there for now as we enter the haze of the article 50 / Lisbon Treaty "trigger" (3 month lag while PM Cameron transitions the government) and an ambiguous negotiated withdrawal that follows.
Now, we watch for "market stabilizing forces" - central banks, FX and pension rebalancers, corporates hedgers etc - to "do work."
IT'S TIME TO BE AWARE OF UPSIDE "GAP RISK" NOW AS THESE PLAYERS ARE FORCED INTO ACTION. Even more obvious are the conditioned "dip buyers" who are already front-running the above inevitable action.
WHAT ARE NEXT MOVES / THOUGHTS / QUESTIONS?:
- BoE rate cut just a matter of time
- Coordinated liquidity CB swap lines…
- Fed inability to act preemptively with a cut of their own as it's not a local issue. QE4 not relevant as rates have only plummeted lower. Tough spot for Yellen.
- What's the PBoC to do? Yuan fixes at weakest level against the Dollar since Jan ’11. Watch this.
- Govts intervening in FX mkts real-time, esp the Swiss National Bank, and EM's (south Korea, India and likely Singapore already), with risk of BoJ soon...
24 June (Friday, Results Day)
The ballots have officially closed (5pm EST). Now comes the nail-biting wait for each of the individual 382 counts to be reported and declared. Markets are extremely volatile (the most we've ever seen) and near impossible to trade as liquidity is much lower than average.
Live vote tracking below
FINAL UPDATE: UK VOTES FOR BREXIT
BREXIT VOTE-LEAVE HAS WON MORE THAN 16.784 MLN VOTES, ENOUGH TO GUARANTEE VICTORY IN EU REFERENDUM - BBC FIGURES
UPDATE: 1127PM EST
BREXIT VOTE-REMAIN ON 10.886 MLN VOTES, LEAVE ON 11.590 MLN AFTER MORE THAN TWO THIRDS OF VOTES COUNTED - ITV
UPDATE: 1127PM EST
BREXIT VOTE-REMAIN ON 10.886 MLN VOTES, LEAVE ON 11.590 MLN AFTER MORE THAN TWO THIRDS OF VOTES COUNTED - ITV
UPDATE: 1121PM EST
BREXIT VOTE - IMPLIED PROBABILITY OF LEAVE VOTE IN EU REFERENDUM AT 94 PERCENT - BETFAIR ODDS
UPDATE: 1042PM EST
BREXIT VOTE-REMAIN ON 48.7 PCT, LEAVE ON 51.3 PCT AFTER HALF OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION
UPDATE: 1033PM EST
BREXIT VOTE-REMAIN ON 48.7 PCT, LEAVE ON 51.3 PCT AFTER 171 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION
UPDATE: 1030PM EST
BREXIT VOTE-REMAIN ON 48.8 PCT, LEAVE ON 51.2 PCT AFTER 160 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION
UPDATE: 1023PM EST
BREXIT VOTE-REMAIN ON 48.9 PCT, LEAVE ON 51.1 PCT AFTER 150 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION
UPDATE: 1016PM EST
BREXIT VOTE-REMAIN ON 49.6 PCT, LEAVE ON 50.4 PCT AFTER 132 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION
UPDATE: 1006PM EST
BREXIT VOTE-REMAIN ON 50.1PCT, LEAVE ON 49.9 PCT AFTER 110 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION
UPDATE: 954PM EST
BREXIT VOTE-REMAIN ON 50.5 PCT, LEAVE ON 49.6 PCT AFTER 90 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION
UPDATE: 942PM EST
BREXIT VOTE-REMAIN ON 51.3 PCT, LEAVE ON 48.7 PCT AFTER 75 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION
UPDATE: 936PM EST
BREXIT VOTE-REMAIN ON 51.0 PCT, LEAVE ON 49.0 PCT AFTER 65 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION
UPDATE: 928PM EST
BREXIT VOTE-REMAIN ON 50.6 PCT, LEAVE ON 49.4 PCT AFTER 48 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION
23 June (Thursday, Vote Day)
Today is the long awaited day of reckoning, the moment of truth where everything over the last few months culminates into one of two outcomes: A vote to leave the EU, or a vote to remain in the EU. Good luck Britain!
For those short on time, the Guardian has compiled a comprehensive guide, highlighting the key junctures on the Brexit referendum-day timeline:
10PM GMT (5PM EST)
Polls will close, and on election nights this is normally the moment broadcasters show their exit polls and make their projection for the night ahead.
However, that won’t happen this time as there’s no exit poll for this referendum. Some banks are said to have commissioned private exit polls, but they will be kept for their employees.
So if anyone tells you they know what’s going to happen at this stage, they’re a chancer, unless they are an eagle-eyed watcher of sterling derivative markets. Sky News has commissioned a survey from YouGov of people previously polled, asking how they voted on the day. This will be released at 10pm, but this is not, repeat not, an exit poll and shouldn’t be treated like one.
1230AM GMT (730PM EST)
The voting is done by 380 council areas, not by constituencies, so it will play out slightly differently from election night. Sunderland (always the first in a general election) and Wandsworth are expected to declare first, and we can learn a bit from their results, depending on whether either campaign does better or worse than expected.
Wandsworth should have a very strong remain showing, with Sunderland showing a narrower lead for Brexit, about 55-60%. Anything lower than that for Brexit will be a great start for remain campaigners.
The City of London is expected to be among the first as well, declaring around 12.45am and likely to show a substantial lead for remain. The remain vote is likely to look high in the early hours of the morning. If it doesn’t, that’s a big problem for in campaigners.
1AM GMT (8PM EST)
Gibraltar and the Isle of Scilly will have high remain votes, but the voter numbers aren’t exactly huge. More telling will be results from Salford and Stockport, which will start to give us a sense of whether Labour’s safe seats in northern England are as pro-leave as has been predicted. That conversation could dominate the punditry for an hour or so.
Another to watch is Swindon, where leave will hope for a win, but a chunk of middle-income voters in their early- to mid-30s in the area – natural David Cameron voters – might push it towards remain.
Hartlepool, a leave heartland, is expected to declare during the hour, as is Merthyr Tydfil, which should also show a lead for leave.
Northern Irish results should start coming in, which will be interesting as there’s been very limited polling in the area. Most areas in Belfast should declare during the hour and instinct would suggest a remain lead, over concerns about the border crossing.
2AM GMT (9PM EST)
This hour is a good time to start concentrating, so put some coffee on.
Westminster, Wandsworth, Ealing and Oxford may give remain the lead here. These are likely to be very safe areas for a remain vote, with high numbers of graduates and younger voters.
We’ll also start to see a number of Scottish results rolling in, from Shetland, East Ayrshire and Angus. If these show only a weak lead for remain, it might be time for Cameron to worry.
Key Welsh boroughs to watch are Blaenau Gwent and Neath Port Talbot, where the opposite is true: Vote Leave will want a good win here, especially in the area troubled by the steel crisis, which Brexit campaigners have linked to the EU.
Castle Point, a key Eurosceptic area in south Essex, will declare around 2.30am. About 70% of voters are in favour of leaving the EU.
Crawley in West Sussex, a bellwether seat in the general election and also likely to be pretty evenly split at the referendum, is also due to declare, as is South Norfolk, where the split should also be telling.
According to JPMorgan's analysis, commissioned for investors, even if leave ultimately ends up victorious, the remain camp is likely to be in the lead until about 3am. If leave has a total vote share of about 40-45% at this stage, Stronger In will be celebrating.
But if that percentage for leave is more like 45-50%, it will be a very close run thing. Anything higher than that is an indication of a good night to come for Boris Johnson and Nigel Farage. Still, pundits are unlikely to call the race this early.
3AM GMT (10PM EST)
Boston in Lincolnshire, where 68% of voters are predicted to be in favour of Brexit, is likely to declare now. Cambridge, one of the strongest remain cities in the country, will declare here, though surrounding Cambridgeshire is very much out-land. Jeremy Corbyn’s distinctly Europhile constituency, Islington, will also declare during the hour.
Look out here for West Oxfordshire, home to David Cameron’s Witney constituency, so the result will be symbolic of something or other.
4AM GMT (11PM EST)
Time to hear from Tendring – home of Ukip’s only MP, Douglas Carswell, who represents Clacton – which is unsurprisingly one of the most Euroskecptic areas of the country. Great Yarmouth and Blackpool, both Brexit heartlands, could also bump up the leave share of the vote during the hour.
Harrogate, one of the most affluent areas of North Yorkshire, will be an interesting result to watch, especially if the leave campaign does better than expected.
Once South Staffordshire, Havering and Gravesham, all strong leave areas, are counted, the running tally should give a pretty fair idea of how the overall result will look, percentage-wise. Broadcasters may start officially calling the result from now.
5AM GMT (12AM EST)
Manchester will declare by 5am, almost certainly for remain. However, by this time, about 80% of authorities are expected to have made a declaration, and it would be a huge surprise indeed if the final percentages differed greatly from the running tally at this hour.
Bristol, one of remain’s strongest areas and also the country’s slowest counter, will declare by about 6am, but it’s unlikely to make a massive difference.
7AM GMT (2AM EST)
The official result should be in by now – unless there are substantial recounts needed and it is close – and Jenny Watson, who chairs the Electoral Commission, will announce the final tallies in Manchester.
Below, we also outline the most important must-knows about today's referendum. We use information from the official Electoral Commission, Open Europe, Reuters, and Deutsche Bank as our sources.
When will results come?
- Votes will be counted by hand, starting as soon as polls close at 2100 GMT.
- Each of 382 local counting areas will tally the number of ballot papers cast and announce local turnout figures (including spoiled ballots and postal votes) in each of the areas. The Electoral Commission has estimated that most turnout announcements at counting-area level will come between 2230 on June 23 and 0130 on June 24. The last turnout figure is expected at around 0400.
- Each area will count the votes and announce totals for REMAIN and LEAVE. The majority of counting areas are expected to declare between around 0100 and 0300 on June 24. The last declaration is expected around 0600.
- Local totals will be collated into totals for 12 regions, and then a final, national, result. The final result will be announced in Manchester by Jenny Watson, Chief Counting Officer.
- The first results are expected around 0030 (Sunderland first perhaps) with 50% likely available by 0400 and 80% by 0500. The chart below shows the likely cumulative percentage declaration by time.
When can people vote?
- Polling stations open at 0600 on June 23 and close at 2100.
About the local counting areas
- The counting areas, based along the lines of local government authorities, vary widely in population. The biggest counting areas are Birmingham, Leeds and Northern Ireland.
- The Birmingham area has around 700,000 eligible voters while the City of London counting area, comprising the central financial district of the capital, has just 7,000 eligible voters. The smallest counting area is the Isles of Scilly which has about 1,700 voters.
- Estimated time of declarations in the bigger areas: Northern Ireland around 0030, Birmingham around 0330, Leeds around 0400, Glasgow around 0400, Sheffield around 0330, Cornwall around 0230 to 0300, Bradford around 0200, Durham around 0130, Manchester around 0400 and Edinburgh around 0300 to 0400).
- London's counting areas are along the lines of the city's 32 boroughs.
What to look out for
- Turnout could be key to the result but only partial figures will be available initially. Turnout at last year's British parliamentary election was 66 percent. Turnout well below this is likely to favour Leave as those who back Brexit are considered more likely to vote, according to campaigners on both sides.
- First results. Sunderland, likely to be one of the first results to declare (2330), has a large number of older, lower income voters who polls show are more likely to back Brexit. If Leave are not strongly ahead here it may indicate they will struggle to break through in areas less favourable to Brexit.
- Geography. Leave is expected to do well in eastern England, so close results in some of the most eurosceptic areas such as Southend-on-Sea (0200) and Castle Point (0130) could give an indication the national vote has swung towards Remain.
- Labour voters. Opposition Labour Party supporters are considered key to securing a Remain vote so the results of traditional Labour strongholds such as the north of England and south Wales, where backing for the anti-EU UK Independence Party has risen, will be closely watched.
Early declarations in such areas include Oldham (0000) and Salford (0030) in northern England and Merthyr Tydfil (0030) in Wales.
- Scotland. Scotland is considered to be pro-EU, so any close early results from Scotland such as Stirling (0030) could indicate trouble for the Remain camp.
- Swing seats. Nuneaton (0100) is considered a bellwether seat in parliamentary elections so will be watched to see if Prime Minister David Cameron has managed to get swing voters who last year backed his Conservatives to turn out for Remain.
- Count chronology. Some research has indicated Remain could be well ahead at first and that from around 0300 to 0400 the Brexit count is less likely to deviate from the end results. Others, as the Open Europe think tank, have suggested that by about 0330 most of strongest Leave areas will have declared so if Leave do not hold the lead or even if it is very close, it may bode badly for them. Ron Johnston, a professor of geography at the University of Bristol who has researched the counting areas and modelled how the vote could unfold, said the big picture was that the figures could flip around until about 0300.
- The number of voters in each area is compiled before counting. So we should get an idea on turnout before the first results (perhaps due at around 0030 Friday). The UK Electoral Commission has estimated that most will come through between 2330 to 0230.
- A low turnout number could therefore favour them. The last General Election (May 2015) saw a 66% turnout but the Scottish referendum saw 85%. The 1975 EEC UK referendum saw just under 65%. It’s impossible to work out at what number the pendulum shifts in favour of ‘remain’ (if indeed it does) but maybe last year’s General Election is a baseline figure.
Will there be an exit poll?
- There are no plans by broadcasters for an exit poll as the margin of error is deemed too large, but there have been reports that some hedge funds may have commissioned private polls which could affect markets.
- Details of a telephone poll conducted before the voting by Ipsos MORI for the Evening Standard newspaper are expected to be published during the day. The findings of a YouGov poll, based on interviews conducted online on Thursday, are due to be announced by Sky News after the close of voting at 2100.
- Voters will be given one piece of paper with the question: "Should the United Kingdom remain a member of the European Union or leave the European Union?" They will be asked to put a cross beside either - "Remain a member of the European Union" or "Leave the European Union".
Who can vote?
- The electoral commission says 46.5 million people can vote, including all those who are entitled to vote in a UK parliamentary election. Voters include British citizens 18 and older who are residents in Britain, and those who live abroad if they have appeared on a parliamentary voter register in the last 15 years.
- Citizens of Ireland and countries of the Commonwealth of mostly former British colonies can also vote if they live in Britain, but citizens of other EU countries who live in Britain cannot. Voting will also take place in Gibraltar, the British overseas territory on the coast of Spain.
Can the count and vote be challenged?
- This is unlikely. The electoral commission says the rules do not provide for a national recount under any circumstances. Requests for local recounts can be made at the local level, to be decided by the counting officer.
- "We expect local recounts to be granted if a specific issue has been identified with the process in that counting area, rather than simply when the local totals are close," the commission says.
- The only way to challenge the national referendum result is by judicial review, which must be requested within six weeks of the certification of the result.
A long and sleepless night awaits global FX traders as we await the results of this historical vote. Expect the expected, and also the unexpected. There is so much going on that anything can turn on a dime. There is also little precedent for traders to look back on for guidance.
Bloomerg writes about how London traders are preparing for this historical event. Camping overnight at offices, overdoses of caffeine, and hundreds of billions of dollars waiting for a trigger, any trigger:
Sleepless in the City Lets Traders Bet Billions on Brexit Result
Enda Homan is going to pull an all-nighter -- and he can hardly wait.
The senior foreign-exchange trader at Allied Irish Banks Plc in Dublin will be glued to his screens through dawn as U.K. voters decide whether to stay in the European Union. It promises to be a record-setting evening, whether in terms of trading volatility or in gallons of coffee consumed.
"It is a unique opportunity for traders, probably not seen since 1992 Black Wednesday,” he said, referring to the September day when the U.K. government withdrew the pound from a European exchange-rate system. Sustenance will probably consist of Chinese noodles from the local deli, and “I will also make sure that there is plenty of freshly brewed coffee to get us through the quiet bits while awaiting the results.”
Across Europe, traders and their employers are making preparations for a big night. JPMorgan Chase & Co. has booked hotel rooms near its Canary Wharf offices, while Barclays Plc is bringing in sleeping bags and sending some employees home today so they can be fresh later on. Other banks are offering bunk beds, sushi and pizza. Everybody has coffee on the menu.
"All the trading desks are in war-preparation mode," said Frederic Ponzo, managing partner at GreySpark Partners, a financial consulting firm, in London. "Volatility is expected to spike up potentially more than during the Swiss unpeg event and volumes to potentially overwhelm them and their systems." Trading was frenzied and orders delayed last year when the Swiss National Bank suddenly removed its cap on the franc.
With polls showing a tight contest, traders will be poised to push the buy or sell buttons as early results become known in the wee hours of Friday morning. Because foreign exchange is the only major market that trades 24 hours a day, they won’t be able to afford to miss a second: Aite Group LLC says profits or losses could reach hundreds of millions of dollars in a market subject to wild disruptions.
It will be a wild time for sterling: depending on how the vote goes, the pound will either sink to the lowest level in more than three decades or climb toward the highest this year, according to a Bloomberg survey of economists. In the run-up to the referendum, global stocks and currencies swung between gains and losses. The pound’s volatility surged to the highest since 2008 when the lead in opinion polls fluctuated between the "Leave" and "Remain" campaigns.
About $140 billion in cash is waiting to be invested, according to Barclays, and investors’ holdings of cash are the highest since 2001, according to a Bank of America survey.
"Much of the frantic last-minute activity will take place in the hour or two before the early results emerge, meaning that U.K. bank staff will work closely with their counterparts in Asia -– the open market at the time -– to roll or adjust whatever hedge needs to be maintained," said Javier Paz, a senior analyst at Boston-based consulting firm Aite Group.
Equity traders too will be in early, long before the exchange opens at 8 a.m. London time.
“The whole team is coming in at 2 a.m., when we’re likely to start to get a feel for the outcome,” said Ben Kumar, an investment manager at Seven Investment Management in London who helps oversee the equivalent of about $15 billion. “It’s partly curiosity -- we’d all be up all night anyway. We need to make sure that there’s a company message that we get out to our clients, that we are prepared for client calls and have something concrete to say.”
Even some who aren’t going to be at the office plan to monitor the results in real time.
"I personally plan to stay up all night” watching market reaction to have context for the trading day, said Gordon Shannon, a London-based money manager at TwentyFour Asset Management. "My wife had a baby last year so I have plenty of experience being up all night. I don’t think I’ll need much more than a coffee."
But for those facing an all-nighter at Royal Bank of Scotland Group Plc in London, fast food could be their main nourishment.
"We will have research and trading coverage and there’s a 24-hour McDonald’s across the road," said Ross Walker, a senior economist at RBS.
Results are scheduled to come in through the night, with the Press Association estimating the first at about midnight local time. By 3:30 a.m., it predicts, more than half of the vote will have been tallied and the ballot count will be completed by 7 a.m.
Some traders, such as Mark Dowding, a London-based partner at Royal Bank of Canada’s BlueBay Asset Management LLP, are still weighing staying up all night.
"You need fresh energy to make sound investment decisions the day after the vote,’’ he said.
In Scandinavia, where this is the week of the midnight sun, things are a little more relaxed.
Danes, for instance, are celebrating Sankt Hans, or Saint John’s, Eve. Aurelija Augulyte, a strategist at Nordea Bank AB in Copenhagen, plans to head off to a bonfire beach party for a few hours before coming back to the office at about 5 a.m. Still, she’ll be in charge of Brexit coverage as it’s a holiday in Finland and Sweden, she said.
What can you do when your market is closed? Go on vacation. Joe Tracy, head of continental European equities at Svenska Handelsbanken AB in Stockholm, will leave Friday.
“My personal view is there will be a Brexit, but that day I will be starting my vacation on my way to New York,” said Tracy, who is in charge of all the bank’s Nordic equity sales to continental European clients. “In Sweden, the markets are closed. It’s the mid-summer’s eve party. Midsummer’s eve is one of our largest annual celebrations.”
The WSJ published a good article about how political polarization will likely flare up irregardless of today's referendum outcome. We mostly agree on the points made:
‘Brexit’ Vote Will Change Europe, No Matter the Outcome
If the U.K. decides in Thursday’s referendum to leave the European Union, it would shake the continent to its political foundations. Even if it stays, the bloc may never be the same.
A decision to leave, which would be a first by a member nation, would deepen the crisis facing a continent already struggling with economic weakness, debt problems, large-scale migration and growing geopolitical instability to its south and east.
The referendum, at a minimum, has delivered a shock to Europe’s political classes, calling into question what some had once regarded as an inevitable march toward a federal EU.
“Obsessed with the idea of instant and total integration, we failed to notice that ordinary people, the citizens of Europe, do not share our Euro-enthusiasm,”European Council President Donald Tusk observed in a speech in late May.
“The specter of a breakup is haunting Europe, and a vision of a federation doesn’t seem to me like the best answer to it.”
Former FX trader Richard Brewslow , writes about today's referendum and how the fastest hands will win:
Today’s Trading Is All About Blinking First
The voting has begun to decide Britain’s EU referendum. It’s raining hard and it’s hot, which makes it fortunate that the British are a hardy lot. They’ve had to be to endure a campaign where the hyperbole has been worthy of a U.S. election.
Banks left and right are warning their clients in advance that they may not have the liquidity or risk appetite to execute trades on their behalf tomorrow. I’m not sure why they’re also advising what trades to do on the outcome.
The only financial institutions who have declared themselves poised to get involved with both hands are central banks. They have their puts ready to go and are revving their transmission mechanisms. Once you get the trading bug, it’s hard to shake.
Yet for all the ambiguity, assets are going into today flying. Nothing can go wrong.
The U.K. hanging by a thread? Versus the dollar, the pound is above all its moving averages, making a new year-to-date high today. Looks awfully good against the euro, too. FTSE 100 has flown back above its moving averages and threatens a technical break-out less than one percent away.
Germany’s DAX index, for which so many obituaries were written, looks like its upward momentum is now solid and has strong technical support to lean on. I’m not sure why it wants to, but the euro is trying to ram its head once again against 1.1450 resistance to the dollar.
Not wanting to be left out, S&P 500 futures have been trading with a strong bid all day.
Price action today means nothing for where it will all be tomorrow, but it does show which side fears it holds the weaker hand. And the trades required to get square. Poker is a fascinating game.
Matthew Shaddick, head of political betting at Ladbrokes (a major UK Bookkeeper) will back Brexit if he had to put money on it. As someone actually involved in monitoring the odds (via financial bets) of this Thursday's outcome, it's interesting to learn that Bremain odds at the bookies are skewed because of big money bets rather than sheer number of bets placed.
Matthew Shaddick explains more in the Op-Ed published at the Telegraph:
If I had to put money on it, I'd back Leave
On the eve of referendum day we face a very similar scenario to last year's general election. Back then, the polling averages showed a tie between Labour and the Tories, whilst the betting markets gave the Conservatives an 80 per cent chance of being the largest party.
This time, the polling averages have it as a dead heat, yet the bookies are rating the chances of a Remain vote at 76 per cent. Of course, it's a bit of an unfair comparison; pollsters aren't paid to predict anything, just to provide a snapshot of public opinion at a given time. That's proving tricky enough, as shown by the very different results being generated by phone and online polls.
So, should we be following the money again? Maybe not: the huge rally on the financial markets and the big swing to Remain on the betting this week seem curious. Many people assumed it was anticipating some very good polling news for the Remain camp, but that didn't really happen – the recent surveys have just confirmed that this is very, very close. It's widely expected that the status quo side will improve somewhat on polling day (because that's what tends to happen in these sorts of referenda), but that factor should already have been priced in.
One interesting pattern in the betting for this vote has been that whilst 75 per cent of the money staked has been for Remain, the majority of actual bets have been for Leave. That's because the average bet stake for Remain is around £450, for Leave it's just £70.
Could that be significant? After all, this isn't like the betting on a horse race or football match; in this event the gamblers are also participants in the race, as most of them will be voters too. The problem with that theory is that the betting public are wildly unrepresentative of the electorate – for a start they are much too male, and we know that men are more likely to be Brexit supporters. Numbers of bets are not likely to be a good substitute for polling.
We also know that there is likely to be a lot of wishful thinking skewing punters' behaviour. Put simply, Remain voters are more likely to think Remain will win and vice versa. Maybe the two sides views will cancel each other out, maybe not. Even if they don't, the idea is that there are enough rational, dispassionate investors in the markets who will correct any such bias, resulting in odds that are an objective assessment of the probabilities.
The truth is, we don't really have enough evidence to be sure how predictive political betting markets really are. It's only in recent years that we've seen the sort of big, liquid, multi-million pound events that could produce anything worth studying. As an example, Ladbrokes took ten times more money on the 2015 general election as we did in 2005.
If I were having a bet today, I think I'd back Leave at 3/1. I still think Remain are the more likely winners, but there's enough uncertainty in this vote to make me think the outsiders have a better chance than the odds imply.
22 June (Wednesday, T-1 Day)
21 June (Tuesday, T-2 Days)
Not every wealthy individual, influential politician, corporate figurehead, or prolific commentator with vested interests in the UK or EU will so candidly (of course not totally honestly) voice his or her opinions about Brexit. For the most case, it is fair to say that more of such people support Bremain than Brexit — inline with the general belief that the rich and wealthy prefer the continuity of the status quo, that is for the UK to remain in the EU.
Of course we sometimes come across a red herring daring to go against this pseudo-sacred flow. One such red herring is billionaire Peter Hargreaves. As the co-founder of Hargreaves Lansdown, the largest U.K. retail broker with more than $84.1bn equivalent in assets, Mr. Hargreaves is certainly a rich and wealthy individual with a lot of vested interest in Britain.
According to a recent interview with Bloomberg, he shares why he supports Brexit and lays out some points beyond the superficial:
Why do you support "Leave"?
Answer: Every year in the EU it gets more political, it gets more legislative, more regulative; we don’t seem to get very much benefit from it. We will be far better out.The EU as an economic mark is declining in the world, when there were only nine countries in it was 30 percent of the world's GDP, now there are 28 it is only 17 percent. That's some serious decline. Other countries that are growing — India, parts of Africa, Brazil, China and even Russia — are the places we should be trading with.
How do you counter strong economist/analyst support to remain?
Answer: There's a huge amount of vested interest, a lot people making these comments are politically motivated and also work for big banks that aren’t British. They’ve built these enormous dealing rooms and offices in the City of London and Canary Wharf and their bosses are saying we don't want to endanger this huge investment of ours. I don't think it will endanger that huge investment. You can't move the City of London to anywhere else in Europe. It's madness to suggest it. Frankfurt, the place everybody keeps talking about, only has a population of 700,000, it could not accommodate anything like the City of London. The City of London is absolutely guaranteed, it is bound to survive. The only center that could take over would be Zurich and that's not in the EU either. It's absolute drivel that the City of London will be affected. The City of London will go out and it will deal with these emerging economies in the Pacific Basin, Southeast Asia, Africa — they're all going to want finance for different things. You can't set up the City of London anywhere else. It takes years, and during that time the City of London will have grown stronger. Any attempt at usurping it will fail.
How will London's role change?
Answer: It will become more global. There are only two global financial cities: New York and London. The fact London is no longer shackled to the EU means it will go out and deal with the rest of the world. New York is not in a great place, it is only in a great place for dealing with America and South America. The London time-zone is perfect for almost everywhere else in the world.
What will happen to the EU?
Answer: The EU will disintegrate when we leave. They will realise there is nothing left. The political union is going to be a disaster and they'll want a free-trade area. Do you know who'll be the first country invited to that free trade area? The U.K.
What happens to interest rates with a Brexit?
Answer: I don't think there'll be any change. One thing every country in the world is trying to do is get the value of their currency down. That's why interest rates are low. It is quite likely the pound will come under a bit of pressure, initially it will go down. That will be compensation for any tariffs, so the tariffs won't bother us. Not that they will instigate tariffs anyway, but any worry about it will already be compensated by the pound. The pound will become strong again, just like after we left the ERM snake under John Major. [At that time] the pound came under enormous pressure, but within 12 months was one of the strongest currencies in the world because we weren't shackled to the euro.
How will factors holding down inflation differ?
Answer: Everyone is trying to increase inflation by reducing their interest rates and reducing the value of their currencies. We don't know what the impact of us leaving will be. I can't make any suggestion on how we get the currency to the level we want and inflation to level we want until I know how markets react to us leaving the EU. It is a hypothetical question, it may do it automatically, we may have measures to take. I think there'll be a knee-jerk reaction, but afterwards there'll be calm with people realizing it is no big deal us leaving. I think everyone is going to realize it is actually going to be good for the British economy.
Would leaving the EU impact savings and investment?
Answer: I have more money in the stock market than any other person in the U.K., I have 2 billion pounds in the U.K. stock market. No one has anything like that. Do you think I would be intent on leaving if I thought that was going to endanger my wealth?
With just 2 full days to go before the referendum officially begins, the big boys have come out en masse to reign in fear amongst Britons who have even the slightest of temptations to vote for a Brexit.
These big names include legendary investor and hedge fund manager George Soros, the person who is famously referred to as the man that "broke the Bank of England" back in 1997, making a hefty $1.5bn in a couple of days by going against the BoE. Soros wrote yesterday that should the UK leave the EU, the consequences would be worse than most are preparing for. He warns that the "pound will plummet, along with living standards," and "the only winners will be speculators." It seems that Soros is going all out to ensure Brexit never happens and exists only in the figments of the imagination.
From George Soro's Op-Ed published at the guardian:
"David Cameron, along with the Treasury, the Bank of England, the International Monetary Fund and others have been attacked by the leave campaign for exaggerating the economic ri sks of Brexit. This criticism has been widely accepted by the British media and many financial analysts. As a result, British voters are now grossly underestimating the true costs of leaving.
Too many believe that a vote to leave the EU will have no effect on their personal financial position. This is wishful thinking. It would have at least one very clear and immediate effect that will touch every household: the value of the pound would decline precipitously. It would also have an immediate and dramatic impact on financial markets, investment, prices and jobs.
As opinion polls on the referend um resultfluctuate, I want to offer a clear set of facts, based on my six decades of experience in financial markets, to help voters understand the very real consequences of a vote to leave the EU.
The Bank of England , the Institute for Fiscal Studies and the IM F have assessed the long-term economic consequences of Brexit. They suggest an income loss of £3,000 to £5,000 annually per household – once the British economy settles down to its new steady-state five years or so after Brexit. But there are some more immediate financial consequences that have hardly been mentioned in the referendum debate.
To start off, sterling is almost certain to fall steeply and quickly if there is a vote to leave– even more so after yesterday’s rebound as markets reacted to the shift in opinion polls towards remain. I would expect this devaluation to be bigger and more disruptive than the 15% devaluation that occurred in September 1992, when I was fortunate enough to make a substantial profit for my hedge fund investors, at the expense of the Bank of England and the British government.
It is reasonable to assume, given the expectations implied by the market pricing at present, that after a Brexit vote the pound would fall by at least 15% and possibly more than 20%, from its present level of $1.46 to below $1.15 (which would be between 25% and 30% below its pre-referendum trading range of $1.50 to $1.60). If sterling fell to this level, then ironically one pound would be worth about one euro – a method of “joining the euro” that nobody in Britain would want.
Brexiters seem to recognise that a sharp devaluation would be almost inevitable after Brexit, but argue that this would be healthy, despite the big losses of purchasing power for British households. In 1992 the devaluation actually proved very helpful to the British economy, and subsequently I was even praised for my role in helping to bring it about.
But I don’t think the 1992 experience would be repeated. That devaluation was healthy because the government was relieved of its obligation to “defend” an overvalued pound with damagingly high interest rates after the breakdown of the exchange rate mechanism. This time, a large devaluation would be much less benign than in 1992, for at least three reasons.
First, the Bank of England would not cut interest rates after a Brexit devaluation (as it did in 1992 and also after the large devaluation of 2008) because interest rates are already at the lowest level compatible with the stability of British banks. That, incidentally, is another reason to worry about Brexit. For if a fall in house prices and loss of jobs causes a recession after Brexit, as is likely, there will be very little that monetary policy can do to stimulate the economy and counteract the consequent loss of demand.
Second, the UK now has a very large current account deficit – much larger, relatively, than in 1992 or 2008. In fact Britain is more dependent than at any time in history on inflows of foreign capital. As the governor of the Bank of England Mark Carney said, Britain “depends on the kindness of strangers”. The devaluations of 1992 and 2008 encouraged greater capital inflows, especially into residential and commercial property, but also into manufacturing investments. But after Brexit, the capital flows would almost certainly move the other way, especially during the two-year period of uncertainty while Britain negotiates its terms of divorce with a region that has always been – and presumably will remain – its biggest trading and investment partner.
Third, a post-Brexit devaluation is unlikely to produce the improvement in manufacturing exports seen after 1992, because trading conditions would be too uncertain for British businesses to undertake new investments, hire more workers or otherwise add to export capacity.
For all these reasons I believe the devaluation this time would be more like the one in 1967, when Harold Wilson famously declared that “the pound in your pocket has not been devalued”, but the British people disagreed with him, quickly noticing that the cost of imports and foreign holidays were rising sharply and that their true living standards were going down. Meanwhile financial speculators, back then called the Gnomes of Zurich, were making large profits at Britain’s expense.
Today, there are speculative forces in the markets much bigger and more powerful. And they will be eager to exploit any miscalculations by the British government or British voters. A vote for Brexit would make some people very rich – but most voters considerably poorer.
I want people to know what the consequences of leaving the EU would be before they cast their votes, rather than after. A vote to leave could see the week end with a Black Friday, and serious consequences for ordinary people."
Also in the list of big names who are strongly vocal against Brexit is UK Chancellor of the Exchequer, George Osborne who hinted that the London Stock Exchange might be shut down if Brexit happened, adding him to the list of many people of appointment who have warned of the ill consequences of Brexit, which many have called fear mongering.
The Telegraph has more:
"The Chancellor responded: “Well look, the Bank of England and the Treasury – Governor Carney and myself – we have of course discussed contingency plans.
But the sensible thing is to keep those secret and make sure you are well prepared for whatever happens but if you set them all out in advance then you rather undermine the power of those plans.”
Pushed again on the contingency plans, Mr Osborne said: “I have a responsibility to the people listening to this programme to do all I can to protect them. “But I have to tell you that you cannot in the end protect people from the economic shock that leaving the EU would bring about.”
Mr Osborne pointed to warnings from the London Stock Exchange there would be 100,000 job losses in the City after a Brexit.
Mr Osborne was challenged about whether redundancies warned by the bank JP Morgan could come as early as Friday – the day after the referendum. Mr Osborne replied: “I think that will start to happen very quickly, sadly.”
He added that if the UK voted to remain there would be a “quick snap back” for the British economy, he said that “decisions will be taken and investment will come in”. Asked if these redundancy notices would be issued on Friday morning if Britons vote to leave, Mr Osborne said: “That will start to happen very quickly sadly.”
20 June (Monday, T-3 Days)
Mark Cudmore, a former FX trader, comments on Friday's and today's epic ramp in global risk assets courtesy of a 670 pips explosion in GBPUSD over the last 48 hours of trading:
"Today’s Brexit sentiment-related rally seen across global financial assets will soon dissipate. Far from being a turning point, the next few days will be dominated by fear and risk aversion.
Respite is “a short period of rest or relief from something difficult or unpleasant” according to the Oxford English Dictionary. That almost perfectly wraps up the view across global markets going into the European session.
The latest poll put the Remain vote ahead after last week showing Leave with the higher count. Bookies’ odds of Brexit have also lengthened sharply. Whatever your view on the reliability of pre-referendum surveys, the important point is that the outcome remains uncertain even if it seems unlikely that Britain will leave the EU.
The referendum is the single biggest risk-event in 2016. No major money manager can afford the consequences of being wrong if they significantly increase their risk exposure this week.
The bravest and most nimble can perhaps punt on sentiment moves. But that is only day-traders and the most opportunistic of hedge funds, and they are a minority of money flows.
For the next few days, the stronger players will either be sitting on their hands or increasing their Brexit hedges.
Given the lack of liquidity in the market and reduced risk appetite, any major hedging flows will impact markets significantly. This will only add to nervousness and increase hedging pressures further yet again.
Markets will remain sensitive to all headlines and developments either for or against departure. But the relief rally will soon fade and, globally, most risky assets will trade weaker by Thursday."