European stocks rally on UK poll

Bourses surged as traders prepared for a win by the campaign for Britain to stay in the EU.

European stocks closed stronger as traders eyed a victory for the Remain campaign.

European stocks surged Thursday and the pound hit 2016 highs as markets seemed geared up for a win by the “Remain” camp in Britain’s historic referendum on EU membership.

Even as polls suggest a close outcome after a hotly contested campaign, traders appear confident that Britons will decide against pulling out of the 28-nation bloc.

“Sterling strengthened further against the dollar on Thursday, as bookmakers’ odds on a Brexit continued to lengthen in the wake of the publication of the last few opinion polls,” John Higgins, of Capital Economics, said in a note to clients.

Financial markets have largely tracked polls in the countdown to the vote — the latest, an Ipsos MORI survey for the London Evening Standard newspaper, put “Remain” on 52 per cent and “Leave” on 48 per cent.

London’s benchmark FTSE 100 closed more than one per cent higher, while eurozone indices in Frankfurt and Paris forged even higher, at around two per cent up. Milan won 3.7 per cent.

In currency trading, the pound hit a 2016 high at $1.4947.

But Oanda’s Craig Erlam said he would “possibly have expected” investors to be “a little more conservative” since the result was “far from guaranteed” and given a large number of undecided voters.

He warned of “quite severe” consequences in the market if voters opted to leave the EU.

Moneycorp traders also pointed to risks for sterling in the event of a British exit.

If that happened, they said, “Black Friday” would make the 1992 currency crisis that became known as Black Wednesday “look like a Sunday school picnic”.

“If the vote is to ‘Leave’, the pound gets trashed. If the vote is to ‘Remain’, some of the buying has already been done,” they said in a note to clients.

Markets suffered a sharp sell-off last week as polls indicating growing support for “Leave” triggered concerns about a potential global rout for share prices just months after a China-fuelled sell-off wiped trillions off valuations.

However with sentiment shifting to a “Remain” victory, equities have rebounded strongly this week.

“Anybody who is predicting this (outcome) with a high degree of certainty is delusional,” said Bill Fitzpatrick, portfolio manager at Manulife Asset Management.

“Markets seem to have almost entirely priced in a ‘Remain’ vote win, meaning that the market moves and volatility around the vote may be far less than many had expected,” Angus Nicholson, a Melbourne-based market analyst at IG, said in a commentary.

“Nonetheless, markets are still incredibly nervous and some sharp market moves are likely over the next 24 hours.” Financial institutions are reinforcing their trading teams to cope with the prospect of frantic trading through the day and the world’s leading central banks say they are ready to react to any eventuality.

Britain, which is the world’s fifth largest economy, will suffer a powerful blow to growth and jobs, corporate chiefs warned, if the country becomes the first state to defect from the EU in the bloc’s 60-year history.

AFP