Although the market seems to be pricing in a "Remain" vote in tomorrow's U.K. referendum on European Union membership, it is way too early for euphoria. Some wide fluctuations in the markets, especially in the pound's exchange rate, are to be expected on Thursday and possibly Friday.
On Wednesday morning, the pound was 0.1% higher against the dollar and 0.3% stronger to the euro, while the blue-chip London index, the FTSE 100, was trading 0.13% higher.
Three fresh polls put the "Remain" camp ahead, but by a very narrow margin. A YouGov poll showed the "Remain" campaign leading with 41% of preferences while "Leave" had 40%. In a Survation poll, "Remain" clocked 45% vs. 44% for "Leave", while an ORB estimate of the voting results showed "Remain" ahead with 54% with "Leave" trailing behind with 46%.
Investors should consider that the vote in what became known as the Brexit referendum has not even started, and things could go either way. The two sides are desperately trying to swing the nearly 10% of undecided voters, while banks and traders prepare for what is certainly going to be a difficult day at least, if not more than that.
One of the biggest unknowns is the level of participation in the vote. The deadline to register to vote was extended by two days after technical difficulties meant that many people who wanted to register at the last minute failed to do so. This has led to a record number of voters registered: 46,499,537, compared with the 46,354,197 voters registered before the general election last year.
However, this does not mean all those registered will cast their vote. Absenteeism will favor the "Leave" campaign, whose voters are much more motivated, and there have already been mutterings of discontent that the referendum date coincides with the timing of the Glastonbury Festival, a five-day music event in Somerset attended by around 100,000 people.
Young people are generally voting for remaining in the EU, as they are used to the freedom to travel and work in any member state that membership offers, but there are fears that not that many of them will turn out to vote on Thursday.
In a last push to give impetus to the "Remain" vote, more than 1,200 business leaders signed a letter urging people to vote to stay in the EU, while "Remain" posters have appeared in home windows across London. The capital is considered to be the most pro-EU city in the U.K., as it has benefited culturally and economically from an influx of people from all over the world.
But many Londoners will not be able to vote in the EU referendum, precisely because they are European citizens. Only U.K. and Irish citizens, as well as Commonwealth citizens who have received permission to stay in the U.K. indefinitely, are allowed to cast their ballot.
Besides London, Scotland and Northern Ireland are the most likely to vote in favor of "Remain". In fact, as the Financial Times pointed out in an article last week, these two regions have the primacy of EU law enshrined in their devolution agreements, which will make for a tricky situation if the final vote is for leaving. This could lead to the two regions requesting independence and re-joining the EU.
Until the final results are announced, it will be a rough ride for the markets. The results will come in batches during the night and early morning, with various regions aiming to finish the vote counting at various times. This means a clear picture is unlikely to emerge on Friday before 7 am London time at the earliest, if the vote is as tight as the polls suggest. Prepare for a volatile two days.
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