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June was always going to be an event heavy month. Quoting from our article on the key events in June:

"The biggest risks in June (in our opinion) will be the EU referendum by the UK in the later part of the month, the June ECB monetary policy decision and press conference, the June FOMC statement and interest rate decision, and lastly the BoJ's monetary policy decision."

As we move into the last third of June, the only event risk that's left is the EU referendum by the UK, to decide whether the UK will stay with the EU or not. Brexit, as everyone calls it.

Brexit fears have sent the GBP on a tumbling free fall in recent times, before regaining some positive ground towards the end of last week following the tragic death of pro-EU MP Jo Cox and Bremain poll numbers edging out Brexit numbers.

We'll have our hands full this entire week as we cover the historic UK referendum due this Thursday.

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Short snippet from the constantly updated page on our website:

When can people vote?

1. Polling stations open at 0600 on June 23 and close at 2100.

About the local counting areas

1. The counting areas, based along the lines of local government authorities, vary widely in population. The biggest counting areas are Birmingham, Leeds and Northern Ireland.
2. The Birmingham area has around 700,000 eligible voters while the City of London counting area, comprising the central financial district of the capital, has just 7,000 eligible voters. The smallest counting area is the Isles of Scilly which has about 1,700 voters.
3. Estimated time of declarations in the bigger areas: Northern Ireland around 0030, Birmingham around 0330, Leeds around 0400, Glasgow around 0400, Sheffield around 0330, Cornwall around 0230 to 0300, Bradford around 0200, Durham around 0130, Manchester around 0400 and Edinburgh around 0300 to 0400).
4. London's counting areas are along the lines of the city's 32 boroughs.

What to look out for

1. Turnout could be key to the result but only partial figures will be available initially. Turnout at last year's British parliamentary election was 66 percent. Turnout well below this is likely to favour Leave as those who back Brexit are considered more likely to vote, according to campaigners on both sides.
2. First results. Sunderland, likely to be one of the first results to declare (2330), has a large number of older, lower income voters who polls show are more likely to back Brexit. If Leave are not strongly ahead here it may indicate they will struggle to break through in areas less favourable to Brexit.
3. Geography. Leave is expected to do well in eastern England, so close results in some of the most eurosceptic areas such as Southend-on-Sea (0200) and Castle Point (0130) could give an indication the national vote has swung towards Remain.
4. Labour voters. Opposition Labour Party supporters are considered key to securing a Remain vote so the results of traditional Labour strongholds such as the north of England and south Wales, where backing for the anti-EU UK Independence Party has risen, will be closely watched.
   Early declarations in such areas include Oldham (0000) and Salford (0030) in northern England and Merthyr Tydfil (0030) in Wales.
5. Scotland. Scotland is considered to be pro-EU, so any close early results from Scotland such as Stirling (0030) could indicate trouble for the Remain camp.
6. Swing seats. Nuneaton (0100) is considered a bellwether seat in parliamentary elections so will be watched to see if Prime Minister David Cameron has managed to get swing voters who last year backed his Conservatives to turn out for Remain.
7. Count chronology. Some research has indicated Remain could be well ahead at first and that from around 0300 to 0400 the Brexit count is less likely to deviate from the end results. Others, as the Open Europe think tank, have suggested that by about 0330 most of strongest Leave areas will have declared so if Leave do not hold the lead or even if it is very close, it may bode badly for them. Ron Johnston, a professor of geography at the University of Bristol who has researched the counting areas and modelled how the vote could unfold, said the big picture was that the figures could flip around until about 0300.

Turnout

1. The number of voters in each area is compiled before counting. So we should get an idea on turnout before the first results (perhaps due at around 0030 Friday). The UK Electoral Commission has estimated that most will come through between 2330 to 0230.
2. A low turnout number could therefore favour them. The last General Election (May 2015) saw a 66% turnout but the Scottish referendum saw 85%. The 1975 EEC UK referendum saw just under 65%. It’s impossible to work out at what number the pendulum shifts in favour of ‘remain’ (if indeed it does) but maybe last year’s General Election is a baseline figure.

Will there be an exit poll?

1. There are no plans by broadcasters for an exit poll as the margin of error is deemed too large, but there have been reports that some hedge funds may have commissioned private polls which could affect markets.
2. Details of a telephone poll conducted before the voting by Ipsos MORI for the Evening Standard newspaper are expected to be published during the day. The findings of a YouGov poll, based on interviews conducted online on Thursday, are due to be announced by Sky News after the close of voting at 2100.

The question

1. Voters will be given one piece of paper with the question: "Should the United Kingdom remain a member of the European Union or leave the European Union?" They will be asked to put a cross beside either - "Remain a member of the European Union" or "Leave the European Union".

Who can vote?

1. The electoral commission says 46.5 million people can vote, including all those who are entitled to vote in a UK parliamentary election. Voters include British citizens 18 and older who are residents in Britain, and those who live abroad if they have appeared on a parliamentary voter register in the last 15 years.
2. Citizens of Ireland and countries of the Commonwealth of mostly former British colonies can also vote if they live in Britain, but citizens of other EU countries who live in Britain cannot. Voting will also take place in Gibraltar, the British overseas territory on the coast of Spain.

Can the count and vote be challenged?

1. This is unlikely. The electoral commission says the rules do not provide for a national recount under any circumstances. Requests for local recounts can be made at the local level, to be decided by the counting officer.
2. "We expect local recounts to be granted if a specific issue has been identified with the process in that counting area, rather than simply when the local totals are close," the commission says.
3. The only way to challenge the national referendum result is by judicial review, which must be requested within six weeks of the certification of the result.

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Cable (GBPUSD) has now rallied from last Thursday's lows of 1.40 to the current 1.44 a few short hours after the FX markets opened for trading Monday. The 400+ pip rally in GBPUSD (along with other GBP crosses) was clearly sparked by the killing of UK MP Jo Cox, a pro-Brexit advocate.

As campaigning was temporarily suspended (still is to date), selling in GBP seemed to exhaust itself as shorts scrambled to cover as upside momentum exploded. We might have seen a short squeeze, as we noted last week that both sentiment and market positioning in GBP futures were at extremely levels, while prices were approaching key technical support. It's fair to say that quite some number of traders shorted GBP at or around 1.40, expecting a breakdown on what in retrospect seems to be climactic selling.

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The Ultimate Visual Guide To Brexit

This coming Thursday, 23 June 2016, the United Kingdom will vote on a historical referendum deciding on the status of its European Union (EU) membership.

For the last 2 years since 2014, the UK parliament, led by Prime Minister David Cameron have promised a public referendum on Britian's EU membership.

Britain's relationship with Europe has always been one of contention, and many have long been awaiting this once in a generational lifetime opportunity to voice their opinions through the democracy of a vote.

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Pound sterling was trading at 1.4020 on Thursday morning when a tragic event sent it soaring 600 pips higher, rising above 1.4660 in the following days. Whether the murder of Jo Cox was the catalyst (that has turned around the outcome of the Brexit referendum) is unclear. It is however apparent that the moment when the news of her shooting and subsequent death hit, coincides perfectly with lows in GBP.

Since thence GBP has soared without looking back, as the momentum in the 'leave' camp has gone, replaced by a poll showing 'stay' leading by 3%. As a result, global equities and risk assets have rallied, with the pound strengthening the most since 2008, soaring by 300 pips since Friday's close. Meanwhile, safe haven assets such as the yen, U.S. treasuries, and gold have slumped. The markets are clearly in risk on mode.

I bet "Stay" wins. But I really hope "Leave" wins. Buy GBPUSD for this time

Less than 2 days till the Brexit vote and intensity of fear mongering and campaigning has started to really heat up in earnest. Just on Monday alone, GBP crosses saw high volatility after various headlines starting that the 'stay camp' continued to gain a lead over Brexit. New pollster result came in and we also saw The Telegraph taking sides saying that it supported Brexit...

Which is ironic because the media company would then go on to publish poll details showing Bremain in the lead.

For those doubting the integrity of bookkeeper's data, the recent surge in Bremain votes is backed by a comparable decline in Brexit votes via opinions polls (i.e. changes in bookies are matched by changes in pollsters).

The latest poll results from ORB dated 21 June (Tuesday) show the 'stay' camp in the lead at 53% vs. 46% for the '"leave' camp.

The Ultimate Visual Guide To Brexit

This coming Thursday, 23 June 2016, the United Kingdom will vote on a historical referendum deciding on the status of its European Union (EU) membership.

For the last 2 years since 2014, the UK parliament, led by Prime Minister David Cameron have promised a public referendum on Britian's EU membership.

Britain's relationship with Europe has always been one of contention, and many have long been awaiting this once in a generational lifetime opportunity to voice their opinions through the democracy of a vote.

READ ALL UPDATES HERE:
http://www.businessoffinance.com/insight/2016/6/20/the-ultimate-visual-guide-to-brexit

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Brexit or Bremain come this Thursday, UK stocks are still expensive however way you look at it. As the referendum comes and goes, the markets will likely quickly parse it off as history and should eventually start to refocus on the fundamentals that are the near record high multiples and valuations that English stocks are trading on.

So regardless of this Thursday's outcome, UK stocks are hardly attractive for the value investor that objectively seals out bargains. In fact, being so high up on this scale, the risk-to-reward profile of UK stocks becomes extremely inferior as the downside risks far outstrips the potential upsides.

***

SocGen's Andrew Lapthone comments more on this:

Global equity markets continued to struggle last week, with the MSCI World index off 1.8% pushing the index back into red for the year. Big losses were seen in Japan with the Topix 500 down 6% and the volatile Mothers index crashing 18.5% over the week as the yen continued to strengthen. According to the BOE measure, the trade-weighted yen is now up more than 20% over the past year and back to where it stood three years ago. In the battle for the weakest currency, Japan looks to have thrown in the towel.

Whatever the outcome of the Brexit vote this week investors will still be facing the prospect of negative rates and negative yields on a huge range of bonds, massive corporate leverage with worryingly rising delinquencies and of course expensive equity markets and falling profits. To that extent these political events are a distraction from the main event, weak global economic growth and perverse asset markets. So whilst the market preference for the status quo might be celebrated in the short-term, actually when the fog clears all of the problems will still be there.

Lets take the UK for example. The market will most probably rally as it is doing today if Brexit is rejected, but rally to where? We have already highlighted the excessive leverage and payout ratios in the UK, but these are not the only problems. On a disaggregated basis, median valuations are at the upper end of historical estimates (see below), profitability whether measured on an ROE, ROA or ROIC basis has rarely been this weak outside of an economic slump, and these figures do not materially change whether the problematic commodity and financial sectors are included or not. Brexit or not, the UK equity market hardly looks healthy.

As expected, very choppy an volatile trading intraday in GBP crosses. Wild swings of 200 pips either way to be expected. Overnight GBPUSD sold off nearly 120 pips, only to rebound 140 pips to Tuesday's intraday highs at 1.4770, and then rolling over lower around the U.S. open on news that the 'leave' camp has gained some ground, narrowing the gap behind Bremain, according to the latest Survation poll data.

News flow is ore or less the same with language from both sides getting increasingly superfluous but also more bombastic.

--New updates--

Remember to check our exclusive dedicated page to the Brexit event frequently as we're constantly posting new content there.

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Pretty much says it all doesn't it? Celebrities and superstars are now also apparently politicians. The BBC News reported on Monday that top English celebrity and Football legend David Beckham supports Bremain, and has even urged his followers to vote for the status quo.

We'll just leave it at there...

How are markets reacting to the apparent Brexit event risk which will climax in less than 2 days? Well, massive hedging at the front end of the VIX, inverting the front end of the VIX curve to the most it has been since the global stock market flash crash in August 2015.

Months of complacency beginning in February (expressed by the steepening of the curve with ultra short-term vol trading below spot) has bred great fear and anxiousness when Brexit fears started to surface and everyone who wasn't hedged started to bid for short-term protection at ever higher premiums each day, leading to an inverted VIX curve at the front end and vol premiums to spike to crisis levels.

***

With U.S. Economic Policy Uncertainty (EPU) at current highs (see bottom pane), in the case of Brexit the U.S. EPU may rise substantially higher, pulling the VIX higher as well.

Goldman Sachs has more on the UK-US macro discrepancy and how that might affect the VIX:

"The VIX may reach the high 20’s to low 30’s if US EPU spikes. After languishing in the low teens over the past several months, last week the VIX broke through 20 for the first time since March. Given that the spread between the US and UK EPU indices is near an all-time high, in the case of a leave decision, it stands to reason that US policy uncertainty could be pulled higher. A simple back-of-the envelope calculation suggests that the current level of the UK EPU Index is consistent with an increase of 80 or so points in US EPU. Tying this back to the VIX, we arrive at VIX levels in the high 20s to low 30s."

***

Here's how analysts and banks see markets trade should Brexit be voted for, courtesy of Bloomberg:

Morgan Stanley

* Base-case index target for the FTSE 100 in case of ‘leave’ is range of 5000-5300; for the Euro Stoxx 50 is 2400-2550

BofAML

* Sees European stocks moving 10% either way after Brexit vote; “leave” result would be risk-off event not just in U.K. but also Europe and, to a lesser extent, globally

* Sell-off in Europe could translate into 6%-7% drop for S&P 500

* “Unquantifiable risk” whether other EU countries would then attempt to leave EU

* Long European low-risk dividend stocks, long SXDP index vs short SX3P index, long European index dividend futures, long MSCI EM

Goldman Sachs

* On average, the ERP (equity risk premium) has risen by ~150bps in past risk-off events. If Brexit were to result in similar scenario, rise in ERP of 150bps from end-May levels would push Stoxx 600 down to 280 and Euro Stoxx 50 to 2400

* Cleanest expression of Brexit risk is in U.K. domestic stocks (GSSTUKDE) and especially those with high sensitivity to investment spending

JPMorgan

* In ’leave’ scenario, euro-area equities would likely underperform U.K. ones, whose relative performance would be helped by GBP weakness

* Stays overweight on U.K. equities, which trade “outright cheap” on P/B metric

Citi

* Given recent equity weakness, likely policy reaction, new oil price regime, base-case Brexit downside risk is ~5%; at extreme end of the outcome spectrum, European stocks could fall 10-20%

* FX weakness, especially in U.K., is a key offset and should, in time, support positive U.K. returns, excluding return of full-blown systemic risk

Deutsche Bank

* Sees 10% downside for European equities

* Overweight FTSE, underweight DAX: if Brexit, U.K. equities would outperform European stocks, given likely GBP depreciation as well as U.K. market’s defensive sector structure

Jefferies

* Sees 5%-10% decline in FTSE banks, euro-zone banks falling by at least an equivalent, if not greater percentage

A rather uneventful Tuesday, which is always a good thing for Brexit traders. Some news flow, not much new, Brexit odds gained slightly at the latter part of the day after falling, pressuring GBP lower. Pound crosses traded in a relatively tighter range with ups and downs. End of Tuesday saw stocks diverge higher from GBP weakness. Pretty clear that GBP has become a risk driver du jour; so for stocks to rally, pound has to be bid.

Markets are very dry now though...nothing much happening. Which is good from our perspective.

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With less than two days until the outcome of the Brexit referendum, traders around the world know two things:

• In a scene reminiscent of Lehman Sunday, everyone will be ready to trade the nanosecond the first results are released resulting in a supernova of volatility and an unprecedented burst in volume

• Markets will simply grind to a halt as banks refuse to take risk positions and execute client orders, all bids and offers are withdrawn as the last trace of liquidity evaporates, and central banks are forced to start trading with each other in the open market

Whichever the case, expect brokers to start issuing their respective notices to clients which should consist of either higher margin requirements for GBP based securities, prohibit trading of GBP based securities altogether, or like UBS issue a warning to clients notifying them of possible illiquidity and indicative-only pricings.

In any case, we urge traders to take note of this and prepare accordingly.

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A funny twist to the Brexit scene less than 24 hours from D-Day. GBP now trades based on how the weather over England is forecasted to be on Thursday. You got that right, the market now moves on the weather. Things have gotten so desperate that both human and algo traders are trigger happy on any and every remotely related new flash.

Wednesday actually started out rather docile with GBP in a strays ascend during the Asian hours. Volatility and trading volume spiked as Europe opened and GBPUSD peaked at its intraday highs (also the weekly highs thus far) before rolling sharply lower as the U.S. session started. As depicted, the weather apparently made all the difference (sarcasm).

More seriously, the latest Opinium polls show Brexit leading only by 1% at 45% vs. Bremain at 44%; the former gaining a percentage point since last poll.

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