With the UK's referendum on EU membership due in four months, it appears the market is gravely concerned about the possibility of Brexit. Despite the unleashing of Project Fear (both military and corporate fearmongery), cable (GBPUSD) has crashed 2.3% (the most in 7 years) to its lowest in 7 years, and both FX volatility and credit risk Brexit indicators are soaring to record highs.
Just as we warned, Friday's dubious gains have evaporated and cable is crashing to 7 years lows...
As Deutsche Bank's Jim Reid notes,
So four months tomorrow we'll see yet another important referendum for financial markets as all of us here in the UK decide on EU membership. Maybe we're imagining it but it seems that important national referendums are becoming more widespread. In the last 12 months we've seen the Scottish Independence and the Greek EU deal referendums both of which were market moving events. Not long before those we had the Crimea referendum, although in fairness this was less of a market moving event, while Catalonia was the subject of a somewhat de-facto referendum back in September. If such national polls are becoming more frequent it perhaps reflects the weak global economic environment and the hope that a major change brings a better future.
Very crudely, the Brexit opinion polls in recent years have tended to be correlated to the economic data in Europe and the U.K. So the stay vote has polled notably higher in good times than bad. In the Euro crisis of 2012, 'Out' regularly polled around 70% amongst the UK population. In today's PDF (click on the link near the top), we show the YouGov polls on Brexit over the last 5 years which highlights this. The latest poll here showed a 9% lead for 'Out' but we should say that a Survation poll over the weekend had 'Remain' in a 15% lead. Indeed all the recent phone polls (like this one) show a big lead for the status quo whereas online polls are mixed with many having 'Out' in the lead. We've collated a table of a selection of the last two months of polls in the PDF as well to highlight this.
One problem for the 'Remain' campaigners is the declining growth across the globe and the continent. On Friday our European economists downgraded their 2016 GDP number from 1.6% to 1.4% following a 12 month period where their 2016 forecast has remained constant at 1.6%.
Thinking about it, if our European friends really want the UK to stay maybe they should let us win Eurovision this year and let us have a good start to Euro 2016. Maybe PM Cameron didn't dare hold the referendum any later than June 23rd as the UK home nations might not be in the tournament much past this date (final on July 10th) with the usual associated doom surrounding our exits.
Since the news of the EU deal for the UK and associated referendum date announcement wires have been dominated by the response of Cameron’s fellow Conservative members, six of which have announced that they will campaign for ‘Out’ including London Mayor Boris Johnson. This is significant given the Mayor’s approval ratings and a big personality now in the ‘Out’ camp, although it remains to be seen just how much of an active role he will play in campaigning, possibly choosing to keep a low profile in light of his future Conservative Party leadership chances. The news comes after Justice Secretary Michael Gove announced himself that he will also campaign for Britain to leave too.
And it appears Brexit indicators are pointing towards Brexit being likely...
One can only imagine the fearmongery ramp-up that will take place in the next few months to 'fix' this.