We have just heard the most substantive Referendum results of the night so far and they appear to be a shock for Remain.
The margins in in favour of the ‘In’s have been thinner than expected, with some 65,400 voting Remain, against 63,598 in Newcastle, and a largely as-expected Sunderland result going to Leave at 82,394, vs. 51930 for Remain.
These have supplemented information showing a high turnout and the tiny British territory of Gibraltor voting ‘Remain.’
Before the chilling effect on the pro-EU camp from the closer-than-expected first clutch of results, the markets were trading as if that result is in the bag, and information to the contrary presented big risks, which the markets have reacted to quickly.
Just an hour or so earlier, sterling touched the symbolic price of $1.50, the highest it’s been this year, whilst the safe-haven yen, among the strongest performing currencies of the year, took a break against the dollar for several hours, and was also being pressed hard by the pound. The handful of stock markets open for business were also conducting it with a tone that could be described as optimistic.
However in the wake of the first more marginal than expected results, markets rapidly unwound.
Sterling subsequently lost the best part of 7 cents and traded not far from $1.43, a fall in thin conditions which according my platform quickly corrected back to almost $1.46. Either way the speed of the sell-off and the lack of conviction of the bulls should be cautionary for trading in the day ahead.
With due caution given relatively illiquid overnight conditions, it does seem like markets are ready to turn on a pin if earlier assessments of a market-friendly referendum outcome prove incorrect.
It’s worth remembering here that in the sterling and euro options markets, where some of the most spectacular price moves have been seen in the run-up to tonight, bears were licking their wounds on Thursday as implied volatility tumbled, in some deals in double digit percentage points, across the curve.
Bearish, high-risk option trades will look very clever if Leave turn out to have the edge. Either way, historic hyperactivity in the options markets in recent months continues to promise cross-asset fireworks, whether traders have to pay a price for their overenthusiasm, by closing positions in other markets, or their if wagers turn out to be correct.
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