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Nouriel Roubini, a well-known American economist and the chairman of Roubini Global Economics, an economic consultancy firm tweeted that "the UK -- having large twin current account & fiscal deficits -- may risk a sharp currency fall & a sudden stop of capital following Brexit and it could stall the UK economy and tip it into a recession as the shock to business and consumer confidence could be severe."
And there was a widespread campaign highlighting risk of Brexit and why Britain should not exit from EU. This had some impact in last few days and markets were getting smoothening feelings. However the jury is yet to be out and billionaire investor George Soros has said that, "It is reasonable to assume, given the expectations implied by the market pricing at present, that after a Brexit vote, the pound would fall by at least 15 per cent and possibly more than 20 per cent, from its present level of $1.46 to below $1.15."
It may be pertinent to recollect that in September 1992 his bearish bet on pound was successful and as he puts it, "I was fortunate enough to make a substantial profit for my hedge fund investors, at the expense of the Bank of England and the British government. "
In these scenario, worries in commodity markets is of recession. Last two quarters have seen some recovery and stabilisation in various commodities. Although safe heaven assets such as gold have turned attractive in times of uncertainties, "30 day implied volatility has increased by over 10 per cent since the beginning of June. This has mainly been driven by the Brexit led moves in oil price. In the case of a Brexit, we expect oil prices to come under pressure, predominantly through dollar led moves but also on expectations of an economic slowdown in European Union and its impact on the global economy. Britain leaving the EU will also set precedence for other members to consider leaving the EU. This is likely to increase uncertainty even after Brexit, supporting the dollar further, and lead to increased likelihood of demand for oil slowing down in the near term, thereby putting further pressure on prices," said Dr Abhishek Deshpande senior oil analyst at Natixis Commodities Research.
Natixis has projected the dollar index to cross 101 again in the eventuality of Brexit.
In global oil futures, funds are having long positions which they have started hedging with buying puts and in the eventualities of Brexit, built of put buying, as per CFTC data, at $45 per barrel suggest 10 per cent correction in oil in near future. Brent oil futures on ICE was today trading little above $50 while WTI on little below $50 a barrel.
Not only oil, even metals are facing Brexit test. Andrew Cole, principal analyst at Metals Bulletin Research said, "Financial market's now turn their attention to the UK's EU membership referendum on June 23. There are also other risk events on the horizon, including the Spanish elections, the US presidential election, rising corporate debt in China and the threat of terrorist attacks. This will keep safe-haven assets in demand, but they do little to support the base metals until these risks dissipate."
Natixis, however, is bullish on gold in the eventualities of Brexit occurring and recommended to go long. However, if Brexit doesn't happen and Britain decides to stay with EU, than profit taking in gold could be possibility but oil and metals would be guided by fundamentals which are not so bright in anycase looking at concerns over Chinese demand and risk of oil supply increasing as prices have stabilised at higher levels.
