Are Private EU Referendum Exit Polls Driving the Markets?

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Are Private EU Referendum Exit Polls Driving the Markets?

Are Private EU Referendum Exit Polls Driving the Markets?

The Market and Political View from Adam Jepsen, Founder, Financial Spreads.

- - - - Calm Before the Storm? - - - -

At Financial Spreads it still feels like the calm before the storm. Trading volumes remain low.

However, despite the referendum being the biggest risk event I can remember, the markets seem to be in risk-on mode.

- - - - Polls vs Markets (and Bookies) Disparity - - - -

While there are no 'public' exit polls so far, the recent polls have had Leave and Remain fairly well balanced albeit with Remain often having a slight advantage.

However, some bookies are now pricing Brexit at 7/1 which seems a bizarre price for a close two horse race.

Likewise, as with the start of the week, the financial markets are in risk-on mode.

So far today, the FTSE is up 85pts, the German DAX is up 220pts and GBP/USD is up another cent.

- - - - Possible Answers - - - -

Why the disparity between the polls and today's market action? The most plausible answers I heard so far:

1) As usual, light volumes, which is what we've seen at Financial Spreads, make it easier to move the markets.

2) Some hedge funds have been paying for their own 'private' exit polls and then trading / driving the markets accordingly (I've not been able to confirm this rumour)

3) Investors are judging the referendum result on the bookmakers' prices and ignoring the facts behind the bookmakers' prices.

One high street bookmaker has already said the average bet size on Remain is about 5 times bigger than those on Leave and that would certainly skew the odds.

Importantly, the bookmaker also said 62% of bets were on Leave.

The headline odds say one thing, the number of individual bets say another.

4) Some investors are ignoring the, not inconsiderable, downside risks and jumping on the bandwagon.

The storm that hit London last night might not be the only one in town.

By Adam Jepsen, 23 June 2016

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