Stocks Surge With Pound as Brexit Chances Decline

Global equities rallied and the pound strengthened the most since 2008 as polls signaled the campaign for the U.K to stay in the European Union was gaining momentum. Haven assets including the yen, U.S. Treasuries and gold slumped.

The Stoxx Europe 600 Index surged by the most since February as the MSCI Asia Pacific Index advanced with S&P 500 futures. Sterling jumped after a poll showed the campaign for the U.K. to remain in the EU leading by three percentage points before the referendum on Thursday. The yen fell for the first time in seven days. The naira slid 22 percent after Nigeria let the currency float freely, and India’s rupee sank to this month’s low after the central bank chief said he will be stepping down. Oil rallied with industrial metals as gold retreated from a five-month high.

Investor sentiment in recent weeks has been largely determined by Britain’s debate over whether to stay in the EU and bookmakers’ odds suggest the chances of a ‘Leave’ vote have faded since the murder of pro-European lawmaker Jo Cox on Thursday. A poll taken since the killing and published over the weekend showed 45 percent of voters backed the ‘Remain’ camp, while 42 percent were in favor of a so-called Brexit — a turnaround from early last week when a slew of surveys put the latter group ahead.

“We are seeing a risk-on move after the latest Brexit poll,” said Niv Dagan, executive director at Peak Asset Management LLC in Melbourne. “It may be short-lived and volatility is likely to remain high until Thursday’s vote. This really could still go either way.”

Odds at betting shops suggest there’s a 31 percent chance of Britons voting to pull out of the EU, down from a record 44 percent before Cox’s death, Oddschecker data show. The referendum is being watched by governments, central banks and investors around the world amid worries that a U.K. withdrawal from the 28-nation bloc could unleash a wave of turmoil across global markets.

Stocks

The Stoxx Europe 600 Index climbed 2.9 percent as of 9:30 a.m. in London, after rallying 1.4 percent on Friday. Russian oil producer Rosneft OJSC added 3.1 percent in Moscow after President Vladimir Putin was said to be considering selling a 19.5 percent stake to China and India.

The MSCI Asia Pacific Index rose 1.7 percent, led by gains in raw-materials producers and energy stocks. BHP Billiton Ltd., the world’s largest mining company, gained 4.4 percent in Sydney. Its Brazilian joint venture with Vale SA is exploring ways to restructure about $1.6 billion in loans.

Japan’s Topix jumped 2.3 percent, with exporters Toyota Motor Corp. and Sony Corp. outperforming the benchmark amid the yen’s retreat. Japanese exports dropped in May for the eighth month in a row, data showed Monday, before a speech by central bank Governor Haruhiko Kuroda.

Futures on the S&P 500 climbed 1.2 percent.

Currencies

The pound strengthened against all 31 major peers, rising 2 percent versus the dollar. The euro appreciated 0.5 percent, while the currencies of New Zealand, Norway and Sweden climbed 0.9 percent. South Korea’s won led gains in emerging markets with a 1.1 percent advance.

“The markets have always been more comfortable with the U.K. remaining in the European Union, hence the boost to risk sentiment now that the ‘Remain’ camp’s campaign appears to be back on track,” Kathleen Brooks, London-based research director at Gain Capital Holdings Inc., wrote in a note.

The yen dropped 0.4 percent to 104.58 versus the greenback, having surged 2.7 percent last week as the Bank of Japan refrained from expanding monetary stimulus at a time when Brexit risk was spurring demand for haven assets. Former Finance Ministry official Eisuke Sakakibara, known as Mr. Yen for his ability to influence the exchange rate in the late 1990s, predicts the exchange rate will gradually strengthen more than 4 percent toward 100 by the end of the year.

India’s rupee fell 0.4 percent following central bank Governor Raghuram Rajan’s announcement that he will be leaving the authority when his term ends Sept. 4.

“Given the uncertain global environment with the upcoming Brexit vote and a potential Fed rate hike, having someone like Rajan who has huge credibility stepping down at this time will not help confidence,” said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore.

Nigeria’s naira dropped to 253.50 versus the dollar. It was pegged at 197-199 through the end of last week, when three-month non-deliverable forwards were trading at 320.

Bonds

U.S. Treasuries due in a decade fell, lifting their yield by three basis points to 1.64 percent. The yield on similar-maturity debt issued by Germany increased by two basis points to 0.04 percent, while rates dropped on Italian and Spanish notes. Germany has the top credit rating at Moody’s Investors Service, while Italy and Spain are eight steps lower.

Bonds staged a global rally last week, with yields in Japan, Germany and the U.K. sliding to all-time lows as the potential for a British exit from the EU fueled demand for the safest assets. In keeping interest rates on hold last Wednesday, Federal Reserve Chair Janet Yellen cited the risks posed by the Brexit vote as one reason to stand pat.

Commodities

Gold slipped 1.1 percent after Brexit risk spurred a 1.9 percent surge in the precious metal last week. As of June 14, money managers held the second-biggest bet ever that bullion would rally further, according to U.S. Commodity Futures Trading Commission data.

West Texas Intermediate crude climbed 1.3 percent to $48.58 a barrel, buoyed by a fourth daily decline in the Bloomberg Dollar Spot Index. Nickel led gains among industrial metals, rallying 1.2 percent in London. Copper added 0.7 percent and zinc rose 0.8 percent.

Corn dropped 1.8 percent after capping a sixth weekly climb on Friday, while soybeans lost 1.1 percent following a 2.6 percent surge in the last session. The U.S. Department of Agriculture is set to release its U.S. crop conditions report on Monday. About 75 percent of the the nation’s corn crop was in good-to-excellent condition as of June 12, the USDA said last week.

Source: Bloomberg