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Brexit Updates
With the EU referendum due today, market participants are paying close attention to any updates related to a potential Brexit. This includes opinion poll results, statements from both the “leave” and “stay” camps, and remarks from public officials. Here’s a quick rundown of how things are shaping up ahead of the big event.
Opinion Polls
Based on the latest round of Brexit opinion polls, the “leave” camp seems to be gaining traction as the lead has swung in their favor over the past few days. On Monday, the YouGov poll indicated a 46% leave and 39% remain vote while the ORB poll results indicated a 49% leave and 48% stay vote. The ICM Brexit poll showed a 6% lead in favor of leaving the EU while the latest TNS survey showed a 47% leave and 40% stay result.
Moving forward, opinion poll results could continue to heavily affect sentiment in the UK, particularly in the financial markets. As it is, any strong indication favoring an exit from the region has been hitting stocks and the pound hard while remarks supporting a “stay” vote offer a brief respite.
Several news agencies including The Economist and Bloomberg have created their own poll trackers, giving market watchers an idea of how the actual vote might turn out, but it looks like it’s still too close to call at this point. In addition, some UK publications such as The Sun have explicitly shared their biases, calling on citizens to vote “leave” and free themselves from Brussels dictatorship.
Interestingly enough, a large number of respondents are still undecided for now and this could make all the difference during the actual referendum. Both “leave” and “stay” campaigns are likely to ramp up their efforts in this last stretch, possibly gaining a few more votes from the undecided group.
Brexit Tax Hike
UK Chancellor George Osborne has warned of the repercussions of a Brexit, among which could be a tax hike to offset the toll on public finances. He explained that lower trade and investment resulting from leaving the EU could leave a 30 billion GBP dent on the UK economy and that this would have to be made up for by higher taxes or cuts to public spending, health, education, and defense. In particular, the government might have to impose a 2% increase in the basic rate of income tax and a 5% cut in spending on police, transport, and local government.
Osborne added that an emergency budget might have to be introduced to accommodate these. Elsewhere, businesses and financial institutions have been warning of the risks that a Brexit might pose to the global economy, creating a more complex landscape of uncertainties for investors.
Alistair Darling, Osborne’s predecessor from the opposing Labor Party, is also supporting the anti-Brexit campaign. He is set to have a joint appearance with Osborne to urge people to vote for staying in the EU. For some, however, this is an indication of how the “stay” camp is starting to grasp at straws in an effort to swing the lead in their favor.
Meanwhile, Prime Minister David Cameron has continued to warn of a likely recession that could take place in the event of a Brexit but it appears that arguments on immigration have been resonating more with the public. In addition, the “leave” camp has countered any warnings of an imminent recession by saying that spending after a Brexit would be maintained by the EU for the next few years. For former health secretary Stephen Dorrell, however, a Brexit could seriously undermine NHS finances and compromise public health services in the UK.
Brokers Adjust Margins
Given how Brexit jitters are already causing huge moves in the financial markets these days, brokers have made their own adjustments to prepare for potentially large price swings leading up to the event. A number of brokers have introduced stricter margin requirements for European equities and commodities denominated in EUR or GBP while also lowering leverage for currency pairs involving GBP, EUR, and CHF.
As of writing, stock markets have been on a steady decline on risk-off moves and capital flight from the European region. The S&P 500 VIX, which is considered a gauge of market uncertainty, has surged to its highest level since March before leveling off later this week. The UK stock market has wiped out 100 billion GBP in just four days as investors closed out huge positions. The FTSE has slumped to 5,923.23, the German DAX is down to 9,519.20, and the Euro Stoxx 50 index is lower to 2,795.94.
Meanwhile, the British pound has chalked up significant losses against its counterparts. GBPUSD is trading close to the 1.4100 handle, GBPJPY is down to 150.00, EURGBP rallied to .7950, GBPAUD broke below 1.9200, and GBPCAD is down to 1.8200.
Brexit by End of 2019?
According to Chris Grayling, Leader of the House of Commons and a staunch Brexit supporter, the UK could be out of the EU completely by 2019 if the “leave” camp prevails. He said that the nation should be ready to take immediate steps after the vote as there are several legislative hurdles to be overcome.
For one, Grayling pointed out that the UK should take early action to restrict free movement in order to prevent a massive influx of people leaving and going in the UK. He also said that he expects a sensible trade deal to be ironed out as soon as possible before the 2020 elections. He added that business leaders should be part of these discussions and that it should be broader-based than just government ministers.
Given the kind of momentum seen in the polls, many are projecting that the next batch of surveys would show a larger margin in favour of the “leave” camp and stress the need to start preparing for this event sooner rather than later. Still, this kind of sentiment could put tremendous pressure on assets in the UK and EU, potentially leading to even more losses in global stock markets as investors rush to liquidate their holdings.
Sources
http://uk.businessinsider.com/leave-leads-eu-referendum-polls-the-sun-2016-6
https://next.ft.com/content/d00e1264-3231-11e6-bda0-04585c31b153
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