There is “considerable fear” in markets ahead of the UK referendum on EU membership later this week.
S&P Dow Jones Indices (SPDJI) said all reported volatility measures were up and that the Volatility Index (Vix) – known as the ‘Fear Index’ – had broken 20 for the first time in three months recently.
The UK’s currency has become the “primary battleground” for uncertainty over the ‘Brexit’ vote this Thursday (June 23). The British Pound Volatility Index stood at 27.46 last week – its highest level since early 2009 and nearly three times its trailing average.
Tim Edwards, senior director, index investment strategy at SPDJI, said: “The British pound has become the primary battleground, bearing the brunt of market uncertainty. Conflicting polls and increasing noise in the final rounds of campaigning are likely to generate further volatility going into polling day.”
With polls near enough 50/50, “all that seems currently certain is that the pound will swing considerably from current levels on the result of the referendum”, said Edwards.
Other fund firms have been studying polls, too, as well as referendum surveys and even bookmakers odds to try and obtain some clarity about the Brexit result. One of these is Psigma and Roy McPherson, head of investment strategy there, says his firm expects the ‘Remain’ vote to win by a narrow margin.
“Telephone polls have been very much in favour of ‘Remain’ throughout the campaign with a 10% preference, or thereabouts, for staying in. Online polls, on the other hand, have been very much more divided, with the bookies strongly in favour of an “In” vote winning out.”
He said bookmakers odds have shifted markedly over the last week and are now much more closely aligned to the polls. ‘Remain’ is being priced with a 60% chance having been up around 70% for most of the lead-up.
As the UK enters its last week of campaigning, voting registrations have been high, implying a large turnout for the referendum.
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