Financial markets' pricing looks sound, Pantheon Macroeconomics says

Financial markets' move on Thursday to price-in a 'Remain' vote looked "sound" but meant the scope for further gains in sterling assets was close to being exhausted, albeit with one notable exception, Gilts, a top-ranked economist said.

The rise in cable meant the currency was now only about $0.02 below the level implied by its past relationship with the differential between UK and US interest rate expectations, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said in a research report sent to clients.

"These judgements look sound," Tombs said.

Tombs added: "Sterling’s afternoon dip might indicate that private exit polls, commissioned by some hedge funds and banks, have indicated a close race. But given the absence of a past precedent and the variation in the types of people who vote throughout the day, we doubt such fieldwork has been illuminating."

Patience

Concerning YouGov's re-contact poll, the result of which was scheduled to be published at 22:00 BST, Tombs pointed out that in Soctland's referendum the method had proved quite accurate, to within one percentage point of the actual result.

"Nonetheless, YouGov’s poll will be only as accurate as the sample of voters it originally obtained for its polls," he cautioned.

Hence, his recommendation was to wait for a decent percentage of the 382 counting areas across Britain to declare results, before trying to safely conclude the threat of Brexit had been exorcised.

The Electoral Commission expected around 20% of counting areas to have declared results by 03:00 BST, rising to 55% by 04:00 BST and 90% by 05:00 BST, he explained.

Similarly, the prices of commercial property and financial services stocks could be expected to recover further, he said, but the FTSE 100 as a whole would struggle to rise much further.

The Gilt market on the other hand might be a whole different matter, it would likely see the biggest move in the case of Bremain coming out on top.

If the UK stays in the European Union then all bets of further quantitatve easing from the Bank of England would be off, the economist said.

Lastly, if spreads in the Gilt market revert back to their pre-referendum levels then the yield on the 10-year Gilt could be expected to snap back by about 25 basis points, he said.