Brexit odds shortened after London mayor intervention

The odds of the UK leaving the EU – Brexit – shortened significantly over the past day as London’s charismatic mayor Boris Johnson came out in favour of voting to leave when the country holds a referendum on 23 June.

According to online service Oddschecker, which lists odds being offered by betting firms across the UK (http://www.oddschecker.com/politics/british-politics/eu-referendum/referendum-on-eu-membership-result) the most popular bets being placed are 4/9 for staying, and 15/8 for leaving – as of the morning of 22 February.

(InvestmentEurope is also running a poll on its website to garner further views on the likelihood of a Brexit following these latest developments. Visit the homepage column on the right to register your view.)

Simon Smith, chief economist of FxPro said that the intervention had been noticed in global currency markets, according to pricing in Asian markets open before European trading hours.

“There is no doubt about the standout currency this morning, with sterling having gone up the escalators into Friday’s close and down the lift-shaft at the start of the Asia session. Friday’s up-move came on the back of the late evening deal between the UK and the EU on the UK’s revised relationship with the EU. But with yesterday showing the influential London mayor (and perceived successor to UK PM Cameron) coming out in favour of the UK leaving, then sterling took a more bearish view. Between now and 23 June, we will have 191 days during which the issue is never far from the headlines. For sterling, as I’ve said before (see “Will Brexit Break Sterling?”), this won’t be a fun time and it’s more the uncertainty that will weigh on the currency, rather than investors taking a view on the outcome and the implications for the economy, which are hard to argue either way.”

“Despite sterling’s move lower (from 1.44 to 1.42 on cable), the dollar is still mixed in Asia. EURUSD has retraced below the 1.11 level, but the Aussie is pushing towards the 0.72 level, again showing its resilience to global developments. For this week, we have preliminary PMI data in the Eurozone released this morning, with some mixed readings being seen for France and Germany. Stocks at least are opening firmer and with no major central bank meetings this week, we are likely to see market sentiment in FX driven by equities and commodities.”

The view of currency markets comes just a couple of days after the UK insurance industry, which is a key investor in UK assets, including through pooled assets and collective investments, welcomed the deal thrashed out by the European Council last week.

Huw Evans, director general of the Asociation of British Insurers, said: “The ABI welcomes the reform package and, in particular, the safeguards the [UK prime minister] has negotiated to protect the interests of non-Eurozone countries. This deal is valuable for the financial services sector.”

“Whether to remain in a reformed European Union is a vital issue for this country and as the largest insurance and long-term savings market in the EU and a major employer and tax provider, it is important the industry contributes to the debate. The UK economy benefits from membership of the EU single market and being part of the world’s largest trading block. Membership guarantees the right to do business in 27 other countries on an equal footing. The UK gains from this arrangement; we sell £21bn (€26.9bn) more in insurance and long-term savings products to the rest of the EU than they sell to us.”

“As a global insurance centre of excellence, the UK has a major influence in shaping the rules of the EU. And as the undisputed financial services centre of the EU, the whole of the UK is able to benefit from the jobs, tax revenue and economic prosperity this position brings.”

However, the debate is just beginning to ratchet up, according to comments from Alpha Portfolio Management.

“Given global investor jitters when Grexit was being considered last year, a Brexit would surely be far more disturbing for the eurozone.”

“In France, the far-right National front is already talking about a Frexit vote should it come to power in 2017. Europeans may be starting to think about what would happen if the UK votes to leave. In the UK, Edwin Bramall the former Chief of General Staff [head of UK armed forces] said: ‘no one appears to have given serious consideration of what damage might be done to Europe if the UK left the Union. I suggest that a broken and demoralised Europe just across the Channel would constitute a far greater threat to our future, indeed to the whole balance of power and equilibrium in the western world, than having to continue to endure some irritating and unnecessary meddling from Brussels'”.

“One further thought. In the event the UK was to vote to leave the EU, then the SNP [Scottish National Party] which, is in favour of staying in, has already said that it would demand another Scottish independence vote to enable it to stay in or re-apply to re-join the EU!”

“What do equities, gilts and sterling not like? Uncertainty. Expect plenty of uncertainty between now and June 23.

 

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