UK and Europe
Global markets have had a Bremain bounce. A new optimistic tone has taken hold at the beginning of the final week before the Brexit referendum. A phone poll from Survation and an internet poll from YouGov showing a lead for the Remain side has prompted a perception that the Brexit tide has turned
A change in bookmaker’s odds in favour of the UK remaining in the EU has been another contributor to fading fears of a Brexit in financial markets.
The FTSE 100 has surged as much as 3% led by banking and financial shares, with shares of Royal Bank of Scotland (LON:RBS) jumping 8.5% following the news it will delay the spin-off of Williams and Glyn.
Risky assets, notably stocks, oil and the British pound have surged whilst haven positions in gold and the Japanese yen have been liquidated. The abrupt change in sentiment has caught many off guard. Sudden swings in and out of downside protection ahead of the vote are adding to volatility.
The bias in the city has generally been that a Remain vote is more likely, but polls pointing otherwise meant that assertion needed to be hedged. The unusually large move in both sterling and the FTSE 100 on Monday is in part, those hedges being unwound.
A number of FTSE 100 bosses, car manufacturers as well as the English Premier League all coming out in favour of the EU adds support to the economic case to Remain.
US
US stocks saw a massive leap higher on the open with the Dow Jones up 200 points, tracking the recovery in Asian and European markets as Brexit fears abated.
Goldman Sachs (NYSE:GS) and JP Morgan Chase (NYSE:JPM) were amongst the top riser as global banking stocks led the Brexit bounce. The announcement of a 747 contract with Russia and the first contract for planes from Iran since sanctions were removed helped shares of Boeing (NYSE:BA) gain over 2.5%.
A record-breaking opening weekend for Nemo sequel ‘Finding Dory’ helped give Disney (NYSE:DIS) shares a boost.
FX
The British pound soared 2% against the dollar from Friday’s close. Cable saw a large weekend gap as traders pounced on a swing in the opinion polls towards Britain remaining in the EU. GBP/USD now sits at the top of its well-defined 1.40-1.47 range. Momentum from the past three days is either a symptom of increased volatility in the lead up to the vote or a sign that the British pound is about to breakout.
The US dollar was lower against every major currency baring the Japanese yen as reduced Brexit fears saw traders pull out of safe-haven bets. A cautious tone from Fed Chair Janet Yellen when she testifies on monetary policy before the Senate Banking Committee on Tuesday would support a weak dollar scenario.
It’s important not to get Brexit tunnel vision. Central banks still matter. A very dovish shift from the Federal Reserve’s James Bullard, who on Friday said the Fed may only raise rates once before 2018, has contributed to a drop in the US dollar, adding to sterling strength.
The Indian rupee dropped after governor Raghuram Rajan announced his retirement, though bounced off the lows on suspected intervention.
Commodities
Oil prices jumped for a second day, having snapped a six-day losing streak last week as the dollar fell and stock markets jumped. A Brexit could have spill over effects on global growth and would also likely cause a flight to safety in the US dollar. As such, Brexit is seen as an oil-negative event.
Demand for gold has been damaged by the sharp reversal that took place on Thursday last week. Outside of the British pound, gold is likely to be one of the more volatile assets in the lead up to the EU referendum for its quality as a safe-haven.
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