The most important statement that can be made on the subject of Brexit’s impact on financial markets is that no-one knows for sure!
A whole host of economists and stock market commentators (see the Financial Times’ Brexit page for a sample of these opinions) have come up with widely differing estimates of the potential impact of a British exit from the European Union, ranging from virtually no impact to a very sizeable hit to the economy.
The latest Brexit poll of polls (as of February 25, 2016) indicates that the British voting public would currently vote 45% to 38% to stay in the EU (with 17% unsure; Chart 1).
1. Poll of Polls Marginally Favours Staying in the EU
Source: www.ft.com
For an Accurate View, Follow the Money!
Another way to look at how people view the probability of a British exist from the EU is via the online betting markets: i.e. to see how people are voting with their own cash.
According to the betting aggregator website oddschecker.com, the average odds offered by online betting sites are currently 2/5 to stay in the EU, and 9/4 to leave the EU. So when looking at how people are placing their own money, there is a strong bias towards staying in (Chart 2).
2. The Balance of Betting Odds Leans Towards Staying In
Source: oddschecker.com. Note: percentages refer to total number of bets placed
Financial Markets Dislike Uncertainty: Sterling the Big Casualty
In financial markets like the stock, bond and currency markets, one thing that investors always dislike is uncertainty. In this case, the economic and political uncertainty surrounding the Brexit issue has already taken a heavy toll on sterling in currency markets.
This is important to note, as the currency markets are after all by far the largest financial markets in the world by daily value traded.
Since the pound sterling’s high point in the middle of 2015, holders of pounds have seen the value of their currency fall by over 12%. Today, one pounds buys you just $1.39 in the wholesale currency…
