JPMorgan Reports 3-5% Lead For "Leave" In Brexit Referendum

While normal poll results have been delayed on Friday as the Brexit campaign takes a day off following Jo Cox's death, moments ago JPM broke the polling embargo and as Reuters reports, JPMorgan said on Friday it saw a lead for the "Out" campaign in Britain's European Union referendum, based on an analysis of opinion polls. "Our attempt to clean up the polls for methodological issues suggests a lead for leave in the 3-5 percent range at the time of writing," researchers said in a note.

"The swing toward leave appears to have accelerated as we moved into the period when we would expect status quo bias to show," they added, while warning that it was "now unlikely" that polls would offer clear guidance on the outcome.

While the lack of any official poll announcements today was sufficient to send cable soaring and undo some of the recent market gloom resulting from the surge for "Leave", once the JPM report was revealed, GBP suffered a quick 50 pip drop.


More from the full note:

Opinion polls ahead of next week’s referendum have made a powerful move toward Brexit (Figure 1). Our attempt to clean up the polls for methodological issues suggests a lead for leave in the 3%-5%-pt range at the time of writing. Prior referenda suggest that a swing toward the status quo is often seen, both in polling over the final two weeks of the campaign and in comparing the result with final projections from the polls. In the Scottish independence referendum, for example, polls made a small move back toward remain ahead of the vote, and the eventual 10%-pt win for remain compared to an average projection of a 5%-pt win from the eve-of-vote polls. This time around, however, the swing toward leave appears to have accelerated as we moved into the period when we would expect status quo bias to show. Moreover the dispersion in polling results and controversy over methods suggests the margin of error around any estimate derived from the polls is high. In our view, it is now unlikely that the polls will  offer clear guidance on the outturn of the referendum before the vote takes place. Hence here we update and summarize views on the economic, political, and policy implications of Brexit for both the UK and the rest of Europe, should it occur.


Process and politics: The referendum is consultative and does not legally compel politicians to take any particular course of action. The day after a leave vote, the UK’s legal relationship  with the EU would remain largely unchanged. But the political environment would change enormously. Our best guess is that David Cameron would resign as rime minister within hours of the result being known. While he might attempt to remain in office until the Conservative party conference in October, his authority during this period will have been eroded. Boris Johnson is likely to take over as PM subject to the vagaries of the Conservative leadership election process (see below). A snap general election is possible, but in our view, unlikely.


Under Conservative party rules for election of the party leader, MPs reduce the field of candidates to two through successive rounds of voting, with the candidate with least votes eliminated in each round. The election between the last two candidates is via a postal ballot of Conservative party members. If only one candidate stands unopposed, that candidate becomes PM. If Boris Johnson is the only MP to stand, the process could be completed within a matter of days. If other individuals choose to stand, however, the process will be more drawn out (in 2005, for example, it took two months).


Vote Leave has argued that a formal “article 50” request to leave the EU should not be made in the immediate aftermath of the vote, and informal negotiations about how the process will evolve should take place first. The organization has also argued that the UK will not accept free movement of labor as part of the subsequent arrangements and should exit the single market. This position may not bind a future UK prime minister.  But it suggests that the UK will take an assertive stance in negotiations toward an exit at the early stage. Although new negotiations on terms of EU membership and a further referendum are possible, we see them as very unlikely.


If the result is a vote to leave we would anticipate a 25bp cut in the Bank rate at the July meeting, followed by a further 25bp move alongside the August inflation report. The speed and magnitude of the response will be sensitive to moves in financial markets; the MPC likely would interpret a weaker currency as reflecting weaker growth expectations provided it is accompanied by weakness in other UK asset markets. The Bank of England has already planned emergency liquidity auctions and will stand ready to provide more if needed.

What is more interesting is whether the JPM result will anchor expectations in the aftermath of yesterday's tragic shooting which according to some would have swayed undecideds into the "Stay" camp. According to JPMorgan that is not the case.