Britain’s referendum on its European Union membership shows voters can still have the whip hand over amoral financial markets. Traders will trade on any scrap of information, even tragedy, as they did after the killing of a pro-EU British lawmaker on June 16. In contrast with the recent euro zone crisis, markets are more at the mercy of events than moulding them.
Sterling has rebounded 2 percent from 10-weeks lows against the dollar and UK stocks have risen because of speculation that the murder of Jo Cox, an opposition Labour Party lawmaker and a vocal advocate for Britain remaining in the EU, might sway the outcome of the close-run June 23 vote.
It’s a feature of markets that traders instantly weigh up the potential economic and political ramifications of each new fact, figure, and rumour – regardless of what they may feel. The same happened when they drove the yen to a record high against the dollar in 2011 after a devastating tsunami ravaged Japan’s northeast. And they drove the euro up as much as 2 percent against the dollar on Sept. 11, 2001 after two hijacked planes hit the twin towers of New York’s World Trade Center.
Market moves sometimes determine what happens next. This was the case when the yen’s 2011 surge spurred the Group of Seven leading industrial nations to intervene jointly in the currency markets for the first time in more than a decade. Even more so during the euro zone crisis when rising government bond yields exacerbated problems to the point of jeopardising the single currency project.
In other instances, asset prices are in thrall to events. This is definitely the case in the run-up to the British referendum. Traders are transfixed by each new opinion poll. The balance of power may, however, shift once Britons have had their say. Whether sterling swoons or gilt yields surge after the referendum will help decide what course the economy and policymakers take next. That’s when markets may turn the tables on voters.
About the writer: Swaha Pattanaik is a columnist for Reuters Breakingviews. She has been covering financial markets and policymaking for 22 years, reporting on key economic and monetary milestones and breaking market-moving news. She was responsible for regional FX, bonds and stock market teams as Reuters EMEA Markets editor between 2008 and 2013. She was Senior Economics Correspondent in France between 2005 and 2008, European Economics and Monetary Affairs Correspondent in Brussels between 2001 and 2005 and headed up the Reuters FX reporting desk in London between 1998 and 2001. Swaha previously worked at Bloomberg, Euromoney and IDEA
source:Reuters
