Brexit: Ultra vires ultra-virus - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, suggests that at present the markets seem to have already decided that ‘Bremain’ it is: GBP/USD has tested as high as 1.4840 as a bell-weather indicator in that regard.

Key Quotes

“Nonetheless, the few who correctly called the last British election outcome, where most pundits had felt a hung parliament was nigh, still have the outcome at 50-50 (though we don’t know if they also called ‘My Big Fat British Wedding Cake’ or not). This means that the long wait today is still likely to be an anxious one.

Of course, a relief rally will likely follow a Bremain vote even if much of that has already been priced in; yet it’s important to take stock of the fact that ‘Brexit’ is not a peculiarly British phenomena in many respects.

In May, Austria avoided electing a far-right president by the narrowest of margins; in Italy, 19 of 20 mayoral contests were just won by the 5-Star movement, which has just called for a referendum on the Euro, while a key referendum on reform to the Italian constitution being pushed by the government is set for October; France’s Marine Le Pen has just called for a ‘Frexit’ referendum; the Netherlands’ Geert Wilders has likewise argued for a ‘Nexit’ referendum if we see ‘Brexit’; Spain has a re-run general election on Sunday where the anti-establishment Unidos Podemos may do well; and even in Germany 17% of those polled apparently back leaving the EU!

In short, the view that Europe is somehow acting ultra vires looks to be transmuting into an ultra-virus; even if the market still believes that the UK will not succumb today we may well see a certain degree of caution remain, and for good reason.

Arguably, of course, it’s the weak and uneven European economic recovery that makes what was previously perfectly acceptable to most voters suddenly look so unpalatable to many.”