Citi sees 40% chance of Brexit; says stocks and sterling could drop 15%

A Remain vote in Thursday’s EU referendum is still Citigroup’s base case – it sees a close outcome of 55% of the vote or less – but the risk of a Leave win is high at 40%, the bank said.

In a Brexit scenario, Citi reckons global equities could sell off around 10% to 15%, while a vote to remain in the EU would see stocks rally a more modest 5% to 10%.

The bank said it would buy any dip in US Treasuries in the event of an ‘in’ vote.

As far as gold is concerned, the bank said gold was likely to head back towards $1,200 an ounce in the event of Remain, especially if the Federal Reserve turns less dovish. A Brexit, however, would prompt a move towards $1,400.

If the outcome of Thursday’s vote is that Britain leaves the EU, Citi would expect long, complicated post-Brexit negotiations.

“The new UK/EU arrangement would likely maintain access to the EU Single Market, but with important limitations and UK concessions.

“Anti-EU sentiment would initially rise, and raise the risk of ‘copycat’ referendums. Elevated uncertainty would drive the main initial economic costs.”

A Brexit would push UK GDP down 3-4 percentage points over the next three years, while sterling would likely depreciate by 15% and Eurozone GDP would fall around 1-1.5 percetange points.

“The BoE is likely to ease and the Fed could delay its next hike to December and beyond. Short-term tail risks are a major blow to confidence and a freeze in financial markets, exacerbated by concerns about policy ineffectiveness.”