Ah, the Brexit Bounce...
European equities popped this morning following U.K. Finance minister George Osborne's warning shot to Brexit voters. Osborne suggested that a "Leave" vote would force the U.K. to raise taxes and enact spending cuts worth 30 billion pounds ($43 billion) and proposed measures to fill an economic "black hole" from lower trade, investment, and tax receipts.
Essentially markets bet that Osborne's dire predictions raised the likelihood of a "stay" vote. Here's analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers this morning:
"Big bear market slash Brexit bounce this morning as Osborne threatens tax hikes – levels matter here as yesterday was a big immediate-term oversold signal in almost every major European index. The FTSE is up +1.1% to 5,986 and would need to recapture 6,305 to not be bearish TREND however."
Take a look at the most recent Brexit tracker (an aggregation of various polls) via Bloomberg. At this point, polls are showing a coin flip vote:
Click image to enlarge.
By way of contrast, we've laid out why we think there are Political, Financial, and Behavioral reasons why the balance is tipped toward a "Stay" vote on June 23, in "An Update On Brexit: Should I Stay Or Should I Go Now."
**In case you missed it, here's a good wrap of Osborne's proposed emergency public spending cuts and tax increases from the BBC and the opposition party's pushback.