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06/12/2016

Global markets on edge as Brexit vote draws near

UK & Europe

Global markets on edge as Brexit vote draws near

Traders have been surprised by the surge in post-Brexit consumer demand in the UK. Analysts warn it's an unreliable barometer. (Bovespa).

[Rafael Matsunaga/Flickr]

Investors from the Americas to Asia have been fleeing for the exit over the past week, as a succession of opinion polls put the Leave camp in front, ahead of a 23 June referendum on whether Britain should remain in the European Union.

As the campaign enters its final stretch, a poll by ComRes showed the race on a knife edge, with support for remaining at 46% and the pro-Brexit side on 45%.

This contrasts with a result from the same pollster just one month earlier in which the pro-remain side had an 11 point lead.

The prospect of one of the big three economies leaving the EU has led to warnings of a bloodbath on global trading floors, just as dealers struggle to recover from a China-fuelled rout that wiped out trillions of dollars at the start of the year.

“We have anxiety over Britain leaving the EU,” Chihiro Ohta, a senior strategist at SMBC Nikko Securities, told Bloomberg News.

“We can’t do anything on the issue and we just have to wait for the vote patiently.”

The three main indexes in New York ended between 0.1 and 0.3% lower, while in Europe the selling was much heavier as traders fret over the future of the six-decade-old economic bloc — London lost 2% and Paris 2.4%.

Japan says it will continue to watch markets for Brexit impact

Worries about the impact of an exit sent the yield of rock-solid 10-year German debt into negative territory for the first time in history as dealers fled to safe investments.

Most Asian markets rose Wednesday (15 June) after a succession of losses but fears Britain will leave the EU are keeping traders on edge.

Japan said it will continue to closely monitor how financial markets react to the possibility that Britain could leave the EU, a government spokesman said on Wednesday.

“I recognise that the Nikkei stock index has fallen and Japanese bond yields have hit record lows, but I don’t want to comment on specific levels,” said Deputy Chief Cabinet Secretary Hiroshige Seko.

“We will continue to closely monitor the situation.”

Investors tend to buy the yen during times of uncertainty, and there is a risk that a Brexit could cause Japan’s currency to surge even further. It has already gained more than 13% against the dollar so far this year.

Osborne: Brexit vote would trigger cuts, tax hikes

Meanwhile, the UK’s finance minister warned Wednesday that a Brexit vote next week would trigger tax hikes and spending cuts.

George Osborne, who is campaigning to remain within the 28-member bloc, announced that schools, hospitals and the army would all have their funding slashed if the pro-Brexit side prevails.

“Quitting the EU would hit investment, hurt families and harm the British economy,” he said in released remarks.

“I would have a responsibility to try to restore stability to the public finances and that would mean an emergency budget where we would have to increase taxes and cut spending.”

Osborne warned that leaving the EU would create a £30 billion hole in national finances.

In response, the basic rate of income tax would be raised, inheritance tax would be hiked, and the budget for services including the National Health Service (NHS) would be cut, he said.

Heightened state of alert at the ECB

The European Central Bank would publicly pledge to backstop financial markets in tandem with the Bank of England should Britain decide to leave the EU, officials with knowledge of the matter told Reuters.

The preparations illustrate the heightened state of alert. The pound and euro have lost value on fears that a Brexit could tip the 28-member bloc into recession.

The pound edged up marginally against the dollar on Wednesday but was wallowing around two-month lows.

Sterling hits two-week low on renewed Brexit worries

Sterling slipped to a two-week low on Wednesday (1 June), while the cost of hedging against volatility over the next month rose to its highest since 2009, on worries that the campaign for Britain to leave the European Union was gaining the upper hand.

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Timeline

  • 23 June: Referendum on Britain's continued membership of the European Union
  • 28-29 June: EU summit in Brussels