Daily analysis 23.06.2016

The bookies are paying less for the EU, and more for Brexit. There are chances that we will know the approximate result of the referendum shorty after 23.00 CET, despite the lack of exit polls. The zloty is taking advantage of an increase in the risk appetite. However, the Polish market is more skeptical than the foreign market.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

• 14.00: Discussion record from the recent MPC meeting.
• 14.30: Jobless claims in the USA (estimations: 270 k).
• 15.45: Initial PMI reading from the American industry (estimations: 50.9 points).
• 16.00: Sale of new houses in the USA (estimations: 560k).

One survey determined the sentiment

Four surveys have been published eventually yesterday. Their results from the afternoon were not favorable for the EU supporters. The Opinium, as well as the TNS online surveys showed a 1% and a 2% advantage for the Brexit supporters, respectively. These results did not cause a panic in the market. However, they increased the uncertainty before the survey series in the evening.

On the other hand, the ComRes phone survey showed a significant advantage for the EU supporters (48% vs 42%). This was definitely a boost for the pound quotations. The British currency climbed at its highest levels against the dollar this year. A positive sentiment towards the British currency was sustained by the YouGov online survey as well. The result was 51% vs 49% in favor of the EU supporters.

The sentiment has clearly improved this afternoon, because bookies began to change their rates. Just yesterday, anyone who placed their bets on the EU, could count for 125-130 pounds for each 100 pounds. Currently, it is approximately 115 per each 100. On the other hand, betting on Brexit can bring a 550 pounds win. Investors have been following the bookies quotations for many days. The lower chances for Brexit are, the more the risk appetite grows. The S&P 500 terminal contracts are 1% above yesterday's closing, and the EUR/USD tested the 1.14 level.

YouGov survey can be helpful

The voting in the United Kingdom ends at 23.00 CET. Due to the fact that no company makes the regular exit polls, investors will theoretically have to wait for the results until the morning. However, the YouGov survey may be helpful in estimating the risk of Brexit shortly after the polling stations are closed.

YouGov will conduct a survey that will be similar to the one from the Scottish referendum in 2014. At that time, estimations of the final result were based on contacting the people who took part in the previous surveys, on the referendum day. Additionally, the majority of respondents gave their vote by using the post office services.

Two years ago, the YouGov estimations were very close to the final result. The official result showed that 55% of Scots wanted to remain within the United Kingdom. The YouGov forecasts were at the 54% level. It is also worth noting that basically no survey (even those that were published prior to the referendum) gave such an accurate approximation.

Base case scenarios

If the YouGov data show a 5% or higher advantage for the EU supporters, the market reaction should be quite determined. The pound may continue to strengthen, and it may exceed the 1.50 level on the GBP/USD quite clearly. Moreover, the value of the emerging markets currencies, as well as of the currencies that are dependent on export of raw materials, should also increase.

If the YouGov assumptions show a difference at the level of approximately 3% or less, the market tension may significantly increase. The smaller it is, the greater the fear among investors. Especially considering the optimism that was observed before noon.

On the other hand, a minor victory of the Brexit supporters in the YouGov survey, as well as a draw, may cause panic. Investors will come to conclusion that trusting the bookies results was a serious mistake, as well as that the risk of Brexit was significantly underestimated. If this happens, we can expect a 3-4% depreciation of the pound. A significant overvalue is most likely to be observed on the zloty as well.

In the scenario of the uncertain YouGov result, investors will focus on the attendance, as well as the results from particular regions. They will be compared with the surveys, and most likely determine the markets reaction. A relatively accurate approximation should be revealed between 4.00-5.00 CET.

Reaction on zloty

The zloty, as well as other instruments, is estimating the risk of Brexit to a lesser degree. Thus, if it appears that the United Kingdom remains within the European Union, strengthening of the zloty against the main currencies should not exceed 0.05 PLN. Of course, if the base case scenario that is assumed by the market does not fulfill, the reaction will be panic.

If the YouGov shows a result that is near a draw, the zloty could wear-off by 0.10 PLN against the euro or the franc. If Brexit actually happens, we can continue to assume that the EUR/PLN would go to the area of 4.60, and the franc will reach the range of 4.30-4.40.

It is worth noting another possibility as well. On one hand, the YouGov survey may be helpful, and on the other, it may create significant market disturbances. If the result is close to a draw, we may observe panic in the market for few following hours. However, it may later appear that the YouGov data is wrong, despite quite accurate indications regarding the Scottish referendum, and the official data will show that the United Kingdom remains within the EU. If this happens, we will see a strong consolidation move on the zloty in the morning.