Stocks and sterling strengthen as UK votes on EU membership

Stocks gained ground yesterday and sterling strengthened to its highest level this year, while haven assets weakened with voting under way in the UK’s referendum on its EU membership. Oil also advanced.

European shares rose to a three-week high in above-average volume, while banks led the S&P 500 Index to within 1.2% of its all-time high.

A gauge of sterling strengthened for a second day, as the yen headed for its biggest retreat versus the dollar since April.

Emerging market equities and currencies advanced. Treasuries and gold declined.

Britain’s Ftse share index rose to a two-month high after two opinion polls published late on Wednesday showed signs of a last-minute rise in support for Britain staying in the EU.

Investors had been glued to the UK’s debate on EU membership in recent weeks as governments and central banks around the world warned that a Brexit vote could hurt global economic growth and destabilise financial markets.

“You can’t really rule anything out before tomorrow,” said Thomas Thygesen, SEB AB’s head of cross-asset strategy in Copenhagen yesterday.

“The issue will be how the outcome is perceived and how the biggest stakeholders react. Even just the absence of bad news may be the start of a risk rally, and markets have been rising in the anticipation of this.”

The Stoxx Europe 600 Index rose 1.5% in New York. The volume of shares changing hands on the European benchmark was about 25% higher than the 30-day average.

The pound rose 0.7% to $1.4814, its strongest level since the end of December and extended its rally to 3.2%.

The Bloomberg British Pound Index, which tracks sterling against a basket of peers, gained 0.7%.

“Even though it looks as though much of the ‘risk of Brexit’ has been priced out of markets, there remains plenty of scope for volatility on either outcome, albeit very much more on a ‘Leave’ than ‘Remain,’” Ray Attrill, global co-head of foreign-exchange strategy in Sydney at National Bank Australia, wrote in a note.

An overnight measure of pound-dollar volatility surged as traders sought protection from unusual price swings.

The gauge, based on option prices, touched 119.7% yesterday, the highest since Bloomberg began collecting the data in 1998.

The pound has acted as a barometer of sentiment since the start of the campaign in February, rising or falling depending on which side of the debate was gaining momentum.

Sterling has climbed about 8% since sliding to a seven-year low of $1.3836 at the end of February, about a week after the date of the vote was announced, and has rallied from as low as $1.4013 last week.

The yen tumbled 1.3% against the dollar and slid for a fifth day versus the euro . The euro appreciated 0.5% versus the US currency.