Morning Briefing 8211 Referendum day Rally

• We’re here.  The vote that may or may not end all British votes as part of the European Union is underway. And even on the day itself, nobody really has any idea which way it will go. The FT’s poll of polls hit 47%/45% this morning, whilst gamblers have been consistently putting their money on Remain for months. Betfair, the world’s biggest gambling exchange, reported wagers tallying the equivalent of 2/11 for Remain, with £54m riding on that result, up some £20m within a few days.
• The Sterling market was voting with its money as well. The pound was roaring like a lion against the dollar, seeing the highest levels all year—on Referendum Day of all days.  Cable was 0.5% up on the day at $1.4780 at time of writing. That’s firmer than most experienced market participants would expect cable to be, going into the risk event of the decade. Quite remarkably sterling has grazed $1.4843 this morning, slightly edging prices on 29th February.
• The euro was in step with the pound too. 77 pence was looking increasingly difficult to sustain, after EUR0.7698 was the best the rate with sterling could manage on the day, and the cross was looking offered at last check. Against the greenback it was a different story for the single currency. It was only starting to come off for the first time since the start of the European session after coming close to matching June highs a touch above $1.14. We’ve seen $1.1399 today.
• At the same time, the yen continued to outperform all comers. It threatened to retake the 103 handle by pulling the dollar to a low of 104.13 yen, keeping the global safe-haven bid in play. Just. But the picture on that front was mixed with gold not managing to get on board this time, and falling to 2-week lows, and the VIX slipping again after three sessions of gains.
• Stocks are certainly not in risk-off mode either, with the FTSE up almost a percentage point and the DAX and the rest of Europe following suit.
• On the other hand, German borrowing costs, the benchmark for the Eurozone are certainly flashing a ‘caution’ signal. The 10-year bund was just 10 basis points lows seen last week.
• Things are appropriately confusing, and volumes are relatively light across assets. Including sterling and euro option implied volatilities, which are declining across the curve, with the exception of ‘butterfly’ trades. The pay-out from these depends on the difference between implied volatility and realised volatility at expiry. The wider the better. They’re ultra-exotic, even in the esoteric world of options, though they do show that a significant minority of traders essentially distrust the market’s resurgent optimism.
• Few would argue against such scepticism with the polls so close. So close as to make voting turnout today as crucial as at any vote over the last few years. Some voters in the South East and London were challenged by the weather this morning, with the tail end of torrential downpours still evident at daybreak and some moderate flooding.

Please look out for our updates on the above market developments and others throughout