EU referendum – how could markets react on the day after a British vote to leave the EU?

Government bonds and gold have rallied, while riskier assets have dipped. But the classic risk-off play in the lead-up to the EU referendum may not be script come Friday should Britain actually vote to leave.

So just what can we expect the hours and days immediately after the referendum, should Britain vote out? Based on various consensus bets and the estimates, here’s a look at what might happen if Britain leaves.


Sterling Selloff


The pound is probably the most sensitive of any asset to Brexit. Within seconds of knowing that Britain is out, sterling is expected to nosedive. Falls of up to 20% have been talked about, with GBPUSD projected by the likes of HSBC and others to slide to levels not seen in 30 years. The cost of protecting cable against dipping beyond $1.35 has increased sharply as investors seek to hedge their positions.

Euro Squeezed


Safe haven status? A bulging current account surplus aside, many investors fear the euro could be caught in the middle of any post-Brexit market mayhem. Implied volatility on euro options has risen as investors bet that a vote to leave could have a significant impact on the single currency. One-month risk reversal for EURUSD has hit its highest since the depths of the Eurozone crisis in 2011.

UK Banks Bust


All but Standard Chartered will take a drubbing – at least that was the message from research firm Bernstein, which predicts a sharp selloff in the UK banking sector if it’s Out come June 24th. Barclays could see its stock shed 40% over 18 months as funding costs rise and tanking investment banking revenues take their toll, the firm said in a report. Lloyds could slip 35%, RBS by 25% and HSBC by up to 20%, said Bernstein. Having said that, UK banks are not in bad shape, holding more capital than ever. The risk of default, unlike their European brethren, is low.

DAX Dumped


According to Goldman Sachs, all European indices are exposed to Brexit risks, but perhaps none more so than Germany’s DAX. It notes that the sales exposure to the UK of DAX companies is 9%, versus 4% for the CAC 40 firms in France.

Goldman’s research suggests that after the FT Small Cap and the FTSE 250, the CAC and DAX are the most exposed to UK policy uncertainty – even ahead of the UK 100, which has a strong international footprint and derives a significant portion of earnings from overseas.

In fact many traders think the DAX might be the best In/Out referendum proxy for trading.

Gold Bugs


Gold has rallied strongly as polls point towards a Brexit, with the price breaching $1,300 a​fter several attempts on the summit. An immediate spasm in financial markets could spark a sudden rush to safety and gold is up there – particularly when there is a high level of uncertainty, which would inevitably be the case if Britain votes out.

Greenback Gains


While the pound could drop 20%, the US dollar could enjoy a bumper 20% gain as investors rush to relative safety (the buck is pretty immune from Brexit, unlike the euro). This could create a 40% swing in cable – a move that could be very swift and hard on traders.



Finally, the real risk to financial markets is not so much in the immediate gyrations on Friday morning – although these will matter to traders with open positions. The real risk that could see a flood of money into safe havens (CHF, JPY, gold, Treasuries) is that a Brexit could spark other countries to look at EU membership.

Added market volatility means increased opportunity but also more risk. To reflect this, ETX Capital may be increasing margin rates on certain markets.

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