Pound, stocks rally as worries over Brexit ease

SINGAPORE — The British pound climbed the most since the global financial crisis yesterday, as opinion polls swung in favour of Briton’s opting to remain in the European Union in Thursday’s referendum, sending global stocks surging while safe havens such as the yen and gold tanked.

The referendum is being closely watched by governments, central banks and investors around the world, amid worries that a United Kingdom withdrawal from the EU could unleash a wave of turmoil across global markets.

The pound advanced 1.8 per cent to US$1.4612 early afternoon in London, having earlier jumped as much as 2.2 per cent, the biggest gain since December 2008. That added to its 1.1 per cent increase on Friday, when it completed the first weekly advance this month.

Against the Singapore dollar, the pound rose 1.7 per cent to a two-week high of S$1.97 early afternoon in London, after having traded as low as S$1.8965 last week. Despite the recent gain, the pound is still down 5.7 per cent against the Singapore dollar this year, showed Bloomberg data. However, DBS told TODAY it expected the pound to recover above the psychological S$2 level after the Brexit vote.

Ms Kathleen Brooks, London-based research director at Gain Capital Holdings, said: “The markets have always been more comfortable with the UK remaining in the EU, hence the boost to risk sentiment now that the ‘Remain’ camp’s campaign appears to be back on track.”

Investor sentiment in recent weeks has been largely determined by Britain’s debate over whether to stay in the EU and bookmakers’ odds suggest the chances of a “Leave” vote have faded since the murder of pro-European lawmaker Jo Cox last Thursday. The implied probability of a vote to remain in the EU rose to 78 per cent yesterday, up sharply from a range between 60 and 67 per cent on Friday, according to Betfair odds, as three opinion polls ahead of the referendum showed the “Remain” camp recovering momentum.

“We are seeing a risk-on move after the latest Brexit polls,” said Mr Niv Dagan, executive director at Peak Asset Management in Melbourne.

Mr Nirgunan Tiruchelvam, an analyst with Religare Capital Markets in Singapore, said: “The perception is that the British public is likely to vote in favour of remaining in the EU. If that is the case, it would remove the overhang of risk in the markets.”

Stock markets across Asia jumped, with Japan’s Nikkei-225 Stock Average ending up 2.3 per cent yesterday, Hong Kong’s Hang Seng Index rising 1.7 per cent and the Shanghai Composite Index edging up 0.1 per cent.

The Straits Times Index closed 1.4 per cent higher, led by oil and gas stocks, as a weaker US dollar and easing worries over Britain’s exit from the EU helped support crude prices. Shares in Keppel Corp and Sembcorp Industries, the world’s two largest oil rig builders, gained 2.2 per cent and 3.2 per cent, respectively.

European markets were sharply higher in early afternoon trade, with the key indices in London, Frankfurt and Paris up between 3 and 3.5 per cent.

On the flip side, the yen, often sought by investors in times of market tension, dropped 0.4 per cent to 104.56 versus the greenback, having surged 2.7 per cent last week as the Bank of Japan refrained from expanding monetary stimulus at a time when Brexit risk was spurring demand for haven assets.

Elsewhere in Asia, the won rose 1 per cent, the Indonesian rupiah advanced 0.7 per cent and Malaysia’s ringgit gained 0.9 per cent.

Gold lost as much as 1.4 per cent to US$1,280.47 an ounce, the biggest intraday drop since May 24, and traded at US$1,284.03 early afternoon in London. The precious metal had risen 1.5 per cent on Friday for its biggest single-day gain since June 3.

“Those who were risk-averse are reversing their positions. Sentiment was extremely negative last week, but it’s recovering now, though we should not be overly optimistic,” said Mr Yoshinori Shigemi, global market strategist at JPMorgan Asset Management in Tokyo. AGENCIES