Editor's Note: Below is a brief excerpt from an institutional research note written on Brexit by Hedgeye Macro analyst Matt Hedrick on 5/26. To access our institutional research email sales@hedgeye.com.
**Note: The aggregate of the latest Brexit polling, as of May 31, suggests 47% would like to "remain" in the EU, 43.2% would like to "leave," and 9.9% are "undecided." (Slightly different than the chart below)
With just under a month before the UK votes to Stay or Leave the EU, below we offer what we believe are the most salient points governing the vote. Taken together, we believe Brexit will be voted down on June 23rd.
For quick reference, an aggregate of the main polls available currently shows a 7 point lead to Stay.
Three of the most important points that anchor our decision tree:
- Political – There’s intensely strong political support from UK leadership (including PM David Cameron and Bank of England (BoE) head Mark Carney) met by equally fervent support from the EU partners like German Chancellor Merkel and French President Holland, which we believe will influence the vote to stay in the EU.
- Financial/Economic – Existing weakness in the UK economy is met with grave fears and concerns that Brexit will negatively impact trade, tax revenue and jobs; and to boot cause the exit of London as a the financial capital. Conversely there’s very little public conversation or reporting on the benefits of Brexit. We expect this collective economic uncertainty to tip the balance to Stay.
- Behavioral – From our behavioral psychology reading it’s apparent people generally don’t like change and indecision. Leaving clearly spells huge indecision that we think the majority will choose to fade.
View on Pound Sterling – year to date the GBP/USD is flat, and up 6% since a February low. We view the currency cross as poised to accelerate on any more favorable indication of Stay vote outstripping Leave. BoE Governor Mark Carney echoed this sentiment stating that “my personal view is that the next [currency] rate move is more likely to be up than down in a Remain vote.”
