Predicting the Brexit Vote

June 23, 2016

Today – Thursday, June 23rd – is the long-awaited date of the “Brexit” vote in which the United Kingdom will choose to withdraw from or remain in the European Union. In the weeks leading up to today’s referendum, many polls indicated a very slim margin between the “remain” and “leave” votes, thus creating another layer of uncertainty within the financial markets.

However, recent market movements indicate that investors are betting on the “remain” campaign, led by Prime Minister David Cameron. As shown in this week’s chart, the pound/dollar exchange rate (blue line) was pushed toward a five-month high earlier this week. In fact, the sterling leapt the most since the Global Financial Crisis of 2008, and is already trading at levels that economists predicted it would reach after the referendum on Thursday. Additionally, European stocks reached their biggest three-day gain in almost 10 months erasing the UK’s benchmark index’s monthly decline.

Though the results of the Brexit vote will not be known until after markets close today, the above data combined with early market movements on Thursday indicate that the Brexit vote will fail and England will remain in the European Union. Should that expected result change, we can expect heightened volatility in the short term, with longer-term impacts on financial markets less clear at this point. As always, we will keep our clients abreast of market developments and potential portfolio ramifications.