Investors around the world are starting to sweat about next week’s U.K. referendum on the European Union.
New opinion polls show the U.K. public could vote next week to leave the EU – the so-called Brexit option. Top selling British newspaper The Sun on Tuesday urged its readers to back Brexit.
The polls may not be a reliable guide to the result but traders sense that support is growing for Brexit, and they’re responding by selling stocks and the pound. The FTSE 100 is down 5% in June, and the pound has lost four cents against the U.S. dollar over the same period.
Uncertainty about the outcome, and the impact on the economy, is making currency markets particularly nervous. The pound is much more volatile than even during the 2008-2009 financial crisis, according to Holger Schmieding, chief economist at Berenberg bank.
Investors are pouring money into relatively safe investments instead. The yield on Germany’s 10-year government debt, which moves in the opposite direction to bond prices, sank into negative territory for the first time ever on Tuesday. Buyers of these bonds are essentially taking a loss just to hold these assets.
“The phrase ‘sea of red’ has never seemed more appropriate [to describe markets],” said Chris Beauchamp, a senior market analyst at online trading firm IG.
The referendum on June 23 is the biggest political decision Brits have faced in a generation.
Those in favor of leaving the EU say European regulations stifle U.K. businesses and leaving would boost the economy. They also say Britain would regain control of its borders and be able to limit immigration.
Those campaigning for the U.K. to stay — including the government — paint a much grimmer picture of life outside the EU. They say trade and investment would suffer, triggering a recession, killing jobs, slamming the pound and causing house prices to fall.
“Volatility in markets reflects the problem of pricing in two completely opposing economic outcomes,” said Paul Donovan, a senior economist at UBS (UBS).