With the referendum day tomorrow nothing has been decided yet. While there’s a degree of uncertainty, markets are braced for a Bremain scenario.
There’s a belief on the markets that a murder of Jo Cox last Thursday was a turning point in the campaign. First, those less convinced to the idea of Brexit might wanted to separate themselves from this tragedy and not be associated with this kind of behaviour in any way. Second, a much expected turnaround in polls took place over the weekend. Unsurprisingly, Monday brought an explosion of euphoria on the markets. However, the latest polls have failed to show a continued improvement and in some cases actually presented a minor return of "leave" advantage.
Nevertheless markets seem calm. This sort of behavior, when both the pound and equities remain high despite a sizable risk of "failure" stems from the fact that speculators betting on Brexit will be equally lost regardless if "remain" wins by 10 percentage points or just a margin of thin hair. Because it is reasonable to assume that a majority of undecided voters backs Bremain, the majority on the markets trades for this scenario making it such a crowded trade. Consequently, a Brexit would cause a shocking reaction to be sure.
With the referendum having such a massive impact on all markets there are not many other factors to pay attention to. Oil is an exception though. The DOE report showed a much smaller decline in inventories, sending prices lower despite that fact that the US output declined again.
We had a second testimony from J.Yellen in Congress today but with the first one being a non-event yesterday it was hard to assume that we’d get a market mover today. Indeed we did not - Yellen was cautious but did not say anything new. For the greenback the next NFP report seems to hold all the keys.
How about the final Asian session before the vote? Well it’s about a Brexit too! We’ll get 2 polls around 10pm (YouGov and ComRes) and not much more later.
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