UK referendum ‘poses severe challenge to capital markets’
Berlin - Arab Today
Britain’s looming referendum on EU membership will pose a severe challenge to financial markets in the coming days, the head of Germany’s biggest lender Deutsche Bank said on Tuesday, urging central banks to stand ready to intervene if necessary.
“The days leading up to and following the referendum will severely test the capital markets,” Deutsche Bank CEO John Cryan said in a speech in Berlin.
“I can nevertheless assure you that we at Deutsche Bank are well prepared. And I have great confidence that the central banks will keep a close eye on the stability of the markets.”
Britons will vote on Thursday on whether to remain in or leave the EU, with polls showing the vote will be extremely close.
The European Central Banks and the world’s other leading central banks are standing by to inject liquidity into the financial markets to counter possible investor panic, within the framework of a cooperation agreement from 2013.
Britain’s pound hit a 5/12-month high against the dollar and stocks rose on Tuesday as worries diminished that Britons would vote to leave the European Union, though polls and surveys showing the referendum on a knife-edge kept investors nervous.
Two opinion polls published on Monday put the “Remain” camp ahead before Thursday’s vote but another gave “Leave” a slight lead.
The dollar weakened against most major currencies with the exception of the yen, which has retreated this week on indications the campaign for Britain to stay in the EU has regained momentum.
“Financial markets appear to be taking the view that the race may well already be run, which given the twists and turns seen already in this campaign may well be extremely far sighted, or dangerously premature. With more polls due out later today we can expect to see further volatility unfold in the event of a move either way,” said Michael Hewson, chief strategist at CMC Markets in London.
Also keeping investors nervous was testimony from the European Central Bank chief Mario Draghi and from US Federal Reserve Chair Janet Yellen. Draghi speaks before a European Parliament committee.
Concern Britain, the world’s fifth-largest economy, will leave the EU has weighed on financial markets for weeks and has been cited by central bankers, including Yellen, as a major obstacle for the global economy.
Britain’s FTSE 100 blue-chip share index, edged up 0.1 percent while the pan-European FTSEurofirst 300 stocks index was up 0.5 percent. Both indexes gained more than 3 percent on Monday.
Asian shares rose. MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.6 percent. Tokyo’s Nikkei 225 index rose 1.3 percent, buoyed by a weak yen.
Sterling, the main vehicle used by international investors to express a view on the referendum, rose as high as $1.4788 , its strongest since early January.
“I think we’ll hop from poll to poll ... and you’d have thought that there will be another couple of wobbles before we’re done,” said Societe Generale macro strategist Kit Juckes.
The pound gained 1 percent to 154.17 yen. The Japanese currency, which is often sought by investors in times of market uncertainty, also fell 0.8 percent to 104.72 per dollar.