Good morning,
Referendum Watch – 1 day to go
We say there is one day to go but by the time you are reading this, it will be a matter of hours until the polls open and the 4 months of campaigning will fall silent as the British electorate votes on whether to remain in or leave the European Union.
As we had warned yesterday the run higher in sterling into the 1.47s against the dollar looked overly exuberant and some of the air has been taken out of the balloon in the past 24hrs. Yesterday’s Survation poll showed a Remain lead of 1 point, down from 3 points 5 days ago; that narrowing as well as a poor and rather panicked Downing St address by David Cameron sent sterling lower.
The Rain falls mainly on Remain
Last night’s final referendum was full of sound and fury but little original thought. The Remain camp attempted to solidify the base of pro-European sentiment with representatives from London, Scotland and the Unions and the turnout dynamics will prove whether they were successful. Turnout could easily be affected by the weather on Thursday as well with heavy thunderstorms and localised flash-flooding expected in parts of the South East as well as general showers across the British Isles.
A higher turnout is seen as a positive for the Remain camp; ORB is predicting that only 50% of those aged between 18-24 will vote compared to 77% of 55-64 year olds. I never thought I would be writing about the weather but there is good reason to suggest that reports of flooding and issues with polling stations as a result will hurt sterling in illiquid markets tomorrow.
With the last hours ticking by there are only a few polls to emerge; both Yougov and Com Res due tonight at 10pm with the final Ipsos Mori one due on Thursday morning.
Yellen the same things
As we thought, Yellen’s appearance on Capitol Hill yesterday had little substance. A direct signal on rates was never expected and none came but the Fed Chair repeated her warning not to focus on one or two payroll reports, and again cited evidence that wages “may finally be picking up”.
As for when rates do eventually rise, the picture will be a lot clearer in the early hours of Friday morning and given our central scenario of a Remain win we think that September is the most likely. Risks to this are obviously that the date will further be pushed into the future and a slow, stilted rebound in payrolls may give the Fed cause to delay until December. A Brexit vote would likely delay any additional policy tightening by at least a year.
The Day Ahead
The data calendar is bare and, as it has been for the past few weeks, few are paying attention to retail or home sales announcements at the moment. Market liquidity is expected to slip away as the session closes so we could see volatile shakes as the US takes over and into the Asian session.
Have a great day.