The UK referendum on whether to remain a member of the European Union is now less than 24 hours away.
One way or another, Friday trade in Asia will be wild, particularly should the UK decide to leave the EU, or “Brexit”. Given the financial ramifications of the vote, sorting the facts from the noise will be crucial for investors.
Well, thanks to Richard Grace, the Commonwealth Bank’s chief currency strategist, salvation is at hand.
He’s produced this nifty chart that shows when the results of of the official vote will start rolling in based on projections offered by the UK Electoral Commission.
“Based on the projected timeline provided by the UK Electoral Commission, the first of the 382 local counting areas will release results around midnight BST (24 June 9am AEST),” says Grace.
“The bulk of regions look set to release results between 3:30am BST and 5am London (12:30pm and 2pm AEST). Official results are likely by 9am London time on 24 June (6pm AEST), but barring an extremely close outcome, the referendum result should be known by then.”
Best not make any firm lunch plans, then.
While the result is expected to be known by mid-afternoon on the east coast of Australia, there’s likely to be plenty of speculation beforehand.
Unofficial exit polls will likely be conducted, creating some extremely skittish movements across financial markets given liquidity is likely to thin out substantially ahead of the event.
Grace, like others, warns that this could lead to substantial levels of volatility.
“According to our estimations, over the past 12 months, just under 10% of GBP/USD foreign exchange transaction have occurred between 7am and 4pm AEST (10pm and 7am London), which is the time-zone when the referendum results are expected,” notes Grace.
“Moreover, there is a potential for there to be no price at times if participants deem it is too risky to wade into the market given erratic price action. A similar liquidity vacuum to that which occurred following the SNB’s decision to remove the EUR/CHF exchange rate floor in January 2015, is possible.”
Uncertainty over the outcome of the vote could see financial institutions stop offering market prices, creating conditions that could see substantial movements, or gapping, in not only foreign exchange markets but other asset classes.
Imagine attempting to put an order in only to see no price on either the bid or offer, or a spread so wide that it’d put the Grand Canyon to shame. That’s what Grace and others are talking about.
It would understandably spark investor panic.
In order to mitigate such an outcome, Grace believes that “the major central banks will at this point intervene to provide liquidity if necessary”.
Given the vote has been well telegraphed, it’s a near-certainty that central banks will initiate coordinated action to calm financial markets, particularly should a Brexit outcome prevail.
However, this alone will not be enough to quash volatility entirely. It will be present regardless of the outcome.
- Currency traders don’t think a ‘Brexit’ will happen, driving the Australian dollar to a 2-month high
- BREXIT POLL: One of the only groups to successfully predict the general election outcome says Remain is ‘decisively’ in the lead
- The betting markets show just a 24% chance of a Brexit
- AUSTRALIAN STOCKS DO NOTHING: Investors sit tight ahead of Brexit vote
- A Brexit is just the beginning of Europe’s problems