Europe close: Stocks edge higher ahead of EU referendum vote

European equities overcame their caution ahead of Britain’s referendum on EU membership the next day, seeing the day out with moderate gains, although analysts were in a cautious mood.

The benchmark DJ Stoxx Europe 600 index finished the day sporting gains of 0.38% or 1.28 points to 341.32, Germany’s DAX was 0.55% higher and France’s CAC 40 was up 0.29%.

At the same time, oil prices retreated, with West Texas Intermediate lower by 1.60% at $49.08 a barrel and Brent crude off by 1.667% to $49.79.

Rebecca O’Keeffe, head of investment at Interactive Investor, said: “Although the poll predictions are still making the EU referendum results too close to call, global equity markets have maintained their positive Remain stance over the past few days and this has continued in European trade today, with equities pushing further forward.

“With less than 24 hours before voting starts, markets are now pricing in virtually no risk of an exit vote, which begs the question as to whether the euphoria is being overdone and how much upside still exists for investors, or whether this is irrational exuberance and investors are ignoring the risks?”

UBS strategist Yianos Kontopoulos said that given the risk-rally of the last few days, there is significant room for downside in the event of a Leave vote.

“We estimate percentage moves in the mid-teens for UK and EU equities but materially smaller moves for the S&P 500 and EM equities. While GBP may come under significant pressure, the EUR may be more stable.”

In a Remain scenario, outside European and UK stocks – where a significant relief rally is likely – Kontopoulos expects much less pronounced moves across assets.

“In equities, we think the S&P 500 could reach new highs, albeit near-term no more than 1-3% higher than current levels. Fundamental pressures limit the potential upside in global bond yields. Yields could rise more for core euro-area bonds, which look the most expensive.

We also see limited upside across EM assets (except perhaps local currency bonds). Interestingly, we believe the potential sell-off in gold in a Remain scenario would be small relative to the upside potential in the opposite case.”

On the corporate side of things, Swedish retailer Hennes & Mauritz rose despite reporting a 17% decline in second-quarter profit.

In London, FTSE 250 department store chain Debenhams was sharply lower after it said like-for-like sales fell in the third quarter and warned gross profit margins could be flatter than previously thought.