Vote early, vote often

John Van Buren would have felt entirely at home in the festival of rhetoric that has been playing out in British politics for the last four months [Only four?]. It has now run its course and investors appear confident that Remain will prevail when the votes are counted tonight.

That confidence is demonstrated by the way investors have marked up sterling and UK equities during the last week. From a low point last Thursday the FTSE 100 index has risen by 6% and the pound has strengthened by an average of 3.3% against the other dozen most actively-traded currencies, losing out only to the South African rand. Over the seven days sterling has picked up five euro cents, six US cents and seven Japanese yen.

It was up there again yesterday, taking second place to the rand. Sterling enjoyed an end-of-day boost when two opinion polls were published showing Remain/Leave splits of 48/42 and 51/49. Those numbers on their own might not provide compelling evidence of a Remain result. However, psephologists insist that in epochal decisions like today's the don't-knows tend to plump for the no-change option, displaying a "status quo bias".

What could possibly go wrong?

Sterling's recent outperformance is based on two presumptions; that Britain will vote to Remain in the EU and that such a result will send the pound higher. Neither is necessarily invalid but there are still risks to sterling.

The biggest risk, it almost goes without saying, is that the pollsters and bookmakers have got it wrong again and that the country votes to Leave. Were that to happen, the ensuing Black Friday would make Black Wednesday in 1992 look like a Sunday school picnic. A lesser risk is that the world is now fully invested in a Remain decision: If everyone has bought pounds in anticipation of that, it is possible to imagine them selling into any spike that follows its announcement.

So the risks are not symmetrical. If the vote is to Leave, the pound gets trashed. If the vote is to Remain, some of the buying has already been done.  In other words, the Leave downside is greater than the Remain upside for sterling.


Yesterday's economic data added little to the debate. The same is likely to be true of today's meagre crop. 

The referendum easily overshadowed Wednesday's ecostats: none was of great importance. Canadian retail sales increased by 0.9% in April, slightly more than expected. Euroland consumer confidence was roughly steady at -7.3. US existing home sales were up by 1.8% in May, as forecast. Federal Reserve chairperson Janet Yellen made her second visit to Congress, this time to face the House Financial Services Committee. She had nothing new to say about monetary policy.

Today brings a rash of provisional purchasing managers' index readings. There is not much else apart from Italian industrial orders, the CBI's retail sales figure for June and US new home sales. Have a fabulous referendum!