Outlook: Brexit Vote

British Prime Minister David Cameron delivers a speech to supporters of the 'Stronger In' campaign event in Witney, Oxfordshire, Britain, 14 May 2016. Mr Cameron is a key figure in the 'Stronger In' campaign which urging Britons to vote to stay in the European Union when they vote on 23 June 2016. REUTERS/WILL OLIVER / POOL

The Brexit Vote is around the corner; Keep an eye on everything

BY Noureldeen Al Hammoury

In a few weeks, until Britons will vote on their country’s future relationship with the European Union (EU).

The decision is set not only to affect the United Kingdom (U.K.) but also Europe and the world for years, if not decades.

However, the possibility of Britain leaving the EU remains markedly lower than the chances that the U.K. will stay. If anything, the U.K. needs this union, and Europe needs the U.K., even with the latter’s ‘special status’ within the EU.

Lack Of An Impending Reason To Leave
In the latest negotiations between the British government and the EU, British Prime Minister David Cameron succeeded in securing all of his country’s preconditions for staying in the Eurozone. These include:

• Maintaining the current British legal tender: This means that the British pound would remain the U.K.’s official currency. In that sense, the euro will not be recognized as the first currency in Britain.

• No bailouts: The U.K.’s banking system will not be involved under any circumstances in any financial bailout that concerns any country within the EU.

• No Schengen Visa imposed: The U.K. will keep its visa system with no changes.
Anyone who wishes to visit the U.K. will have to apply for an entry visa directly from any of the U.K.’s diplomatic missions, and not through the European Schengen visa process.
The Europeans agreed to these conditions, a matter which was regarded by most analysts as a victory for the U.K.

Now it is all up to public opinion in Britain to make the final decision and, frankly, so far the result of various polls has been mixed, though they mostly suggest that the decision will be in favor of staying in the union.

In my opinion, this vote will probably be akin the Scottish referendum that also saw plenty of mixed poll results but ended with the U.K. remaining united.
That said, surprises can never be ruled out.

What does all of this mean? And what kind of impact will this vote have on international markets?

Brexit Vote’s Impact On Global Markets
Such a vote should not be considered an internal British issue. If anything, it is expected to have a global impact, especially if it comes with a negative surprise—that is leaving the EU.

As such, traders are keeping an eye on everything. This includes monitoring the polls, the movement of currencies, traded equities, listed stocks, commodities’ prices and even bonds.

Everything will be affected before and after the vote. A negative vote will mean a drop in prices and the new favored color for the markets will be decidedly red.

So far, the risk level of leaving the EU is very low. If you are a trader and saw an unusual selloffor a rally in stocks, equities and even currencies, the first thing to look for should be news coming out from the U.K.

Oil Fails To Stabilize Above $50/Barrel
Crude oil prices, including Brent and WTI, have rallied above $50 a barrel during the last week of May, for the first time since November 2015, before slipping back to just under the $50 mark recently.

This rise in crude prices was backed by lower oil inventories in the United States. For the time being, oil prices remain stable above the $45/barrel mark.

However, the most important event, which will impact oil prices, remains ahead of us.
On June 2, the Organization for Petroleum Exporting Countries (OPEC), will hold its meeting in Vienna.

So far, there is no clear view that the organization will succeed in convincing all its members to freeze their production at their respective current levels.

Iran, in particular, remains an obstacle. The Persian state refused to freeze its production earlier this year when it stood at three-and-a-half million barrels a day. Many analysts speculate that the country actually produced four million barrels a day, a market share that means it would agree to freezing its production by June.

Should that decision be reached, we may see crude prices above the $50/barrel mark again.

In short, a disappointing decision by OPEC may fuel volatility even further—which means that a fluctuation in oil prices is very likely ahead of the meeting.

Noureldeen Al Hammoury is the Chief Market Strategist at ADS Securities.


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