One of the most reliable polls available on the outcome of any election is how investment markets react prior to the vote. It's not that investors somehow have inside information, but the markets themselves are an election every day, with thousands of traders voting their opinion with their money and thereby raising or lowering prices based on their views. The big money players, of course, have more say in the outcome, but they also usually have much better information as well. Based on this approach, the markets are giving a very loud and clear message that the BREXIT vote in the UK will be won by the LEAVE faction.
Only a week ago, I wrote an article indicating BREXIT could win (See: "Investors, Get Ready For A Possible Yes Vote On Brexit"). This was very much a minority opinion at the time, although far more people now think it might be possible. What created the shift was a series of political polls, some indicating the Leave faction was winning by a decent amount. The polls were neck and neck only a week ago, with the REMAIN side having been ahead for months, usually by a large margin. Momentum over time has been in favor of the LEAVE contingent and this is continuing as the vote approaches. Momentum can be more important than how voters claim they are going to vote in a poll (unless it's taken very close to election day) because it can turn into a stampede as the election approaches.
While markets began to move earlier, a major shift in the opinion became obvious when an ORB poll (sample size 2,000) on June 10th indicated LEAVE was 10 points ahead. Then an Opinium poll on June 12th had LEAVE ahead by a staggering 19 points (this poll was widely discounted). On June 14th, A YouGov/Times poll had LEAVE ahead by 7 points and a TNS poll (sample size 2,497) also had LEAVE ahead by 7 points. Despite the surge in poll support for LEAVE, UK bookies are still indicating that they see the chance of LEAVE winning as 40% or less. So what do markets say?
To analyze what the markets are thinking about how the BREXIT vote is going to turn out, price changes in currencies, bonds and stocks can be examined. Gold can be considered as a currency (instead of a commodity), albeit a currency that doesn't circulate. A LEAVE vote should be negative for the British pound and the euro, but positive for the U.S dollar and Japanese yen (the two safe havens currencies during the Credit Crisis in 2008). Safe haven government bonds should rally and stocks in the UK and on the continent should sell off. All of this is taking place.
The chart below is for gold (NYSEARCA:GLD), the British pound (NYSEARCA:FXB), the euro (NYSEARCA:FXE) and the Japanese yen (NYSEARCA:FXY) for a 10-day period. Notice the wide divergence that took place once the polls started favoring a BREXIT. The divergence began about a week earlier, however. In the chart, gold is the black line, the yen is the red line, the euro is the blue line and the pound is the yellow line.
Gold, British Pound, Euro and Japanese Yen June 6th to 14th
Stock prices are also indicating investors are fleeing riskier assets on the continent and in the UK. These markets are falling compared to the U.S. In the chart below, the S&P 500 (NYSEARCA:SPY) is the line in black, the UK FTSE 100 is the line in yellow and the STOXX Europe 600 is the line in blue.
SP500, FTSE100, and STOXX Europe 600 June 6th to June 14th
Finally, money is moving into safe-haven bonds. Consequently, yields are falling as the price of bonds rise. The yield on the German 10-year bond actually fell below zero for the first time ever on June 14th. In the chart below the change in yield in a ten day period on the U.S. 10-year Treasury (the black line), the 10-Year British Gilt (blue line) and the 10-Year German Bund (yellow line) can be seen.
Yields on 10-Year U.S. Treasuries, British Gilts and German Bunds June 6th to 14th
There is still more than a week until the BREXIT vote on June 23rd. Much of the price changes on assets will likely take before the vote. If opinion starts moving back toward REMAIN, this will be reflected in asset prices. The outcome will probably not surprise the market, just the pundits. It is not advisable to take long positions on stocks or European currencies before the BREXIT vote. Long positions on bonds are safer. Gold and the Japanese Yen look like the best bets at the moment.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.