Until recently investors tended to see the possible departure of Britain from the European Union as a domestic issue. In the last week that parochial view has broadened. Central banks in The United States and Japan both postponed changes to monetary policy, at least in part because of the uncertainties posed by next Thursday's referendum.
At the Bank of Japan some board members "were concerned that even if the BOJ acted this week, the market impact of its move would fade if a 'Brexit' vote rocked global financial markets".
In the States, Federal Reserve chairperson Janet Yellen said it "could have consequences for economic and financial conditions in global financial markets".
Sterling would inevitably be first to feel the effect of a vote to Leave. Immediately such a result became clear the pound would be marked down harshly, across the board. The Bank of England's Monetary Policy Committee noted in Thursday's minutes that "were the UK to vote to leave the EU, sterling's exchange rate would fall further, perhaps sharply". Far less clear is what would happen to the pound after the dust had settled and what the effect would be on the euro.
Some analysts believe it would not take sterling long to regain its position against the euro. They base their argument on the assumption that Brexit would pose an existential threat to the single European currency and possibly even to the EU itself. Against other currencies, however, they would foresee protracted weakness for the pound as UK politicians and business leaders struggled to define new directions for the country and its economy.
In the meantime, though, neither the EU nor the UK economy seems to be suffering unduly from Brexit-angst. During the last seven days Britain reported stronger retail sales and lower unemployment. Sales were up by 0.9% in May and 6.0% higher than in the same month last year. Average earnings rose by 2.0% in the year to April, representing a real increase (correcting for inflation) of 1.7%, while unemployment ticked down from 5.1% to 5%, its lowest level in more than a decade.
Across the Channel Euroland figures showed industrial production increasing by a monthly 1.1%, putting it 2.0% higher on the year. The number of people in work went up by 0.36% in the first quarter and the trade surplus widened. The only real wobble was in France, where there have been strikes and demonstrations against President Hollande's efforts to modernise the labour laws.
There are no premier-league economic data on the agenda for the coming week. Britain's contributions will be Rightmove's index of residential property asking prices, public sector net borrowing, the CBI's assessments of manufacturers' order books and retail sales and Gfk's barometer of consumer confidence. The offerings from Euroland include consumer and investor confidence and a string of provisional purchasing managers' index readings.
But will investors care about any of those? No a lot. With Thursday's referendum now seen as posing a global threat both the pound and the euro can be expected to be given the run-around as opinion pollsters and bookmakers report their results and prices. And it could all get very messy next Friday, whatever the outcome.
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