Stocks rise with US futures as pound gains while UK votes

BLOOMBERG

Stocks gained with U.S. equity-index futures and the pound strengthened to its highest level this year as the U.K.’s referendum on membership of the European Union got under way.
European shares rose to a three-week high in above-average trading amid a vote that past opinion polls indicated was too close to call. A gauge of sterling advanced for a second day, while a measure of implied overnight price swings versus the dollar climbed to a record. Mexico’s peso and Russia’s ruble led gains among oil-exporting nations as crude advanced. The yen fell with gold as demand for haven assets eased, while perceived corporate credit risk fell for a fifth day.
Investors have been glued to the U.K.’s debate on EU membership in recent weeks as governments and central banks around the world warned that a vote for a so-called Brexit could hurt global economic growth and destabilize financial markets.
A gauge of expected volatility in U.S. stocks jumped to its highest level since February ahead of the referendum.
“You can’t really rule anything out before tomorrow,” said Thomas Thygesen, SEB AB’s head of cross-asset strategy in Copenhagen. “The issue will be how the outcome is perceived and how the biggest stakeholders react. Even just the absence of bad news may be the start of a risk rally, and markets have been rising in the anticipation of this.”
Voters have until 10 p.m. to cast their ballot in the referendum. The first results are expected around midnight, while the final ones are due at about 7 a.m. on Friday. Polls published over the last three days suggested the vote will be finely balanced between the “Remain” and “Leave” camps.

Stocks
The Stoxx Europe 600 Index surged 1.5 percent at 12:40 p.m. in London, with miners leading a rally of all industry groups. The volume of shares changing hands on the European index was about 41 percent higher than the 30-day average. Britain’s benchmark FTSE 100 Index advanced 1.2 percent.
Futures on the S&P 500 added 0.9 percent, indicating U.S. equities will rebound from Wednesday’s decline. Data on jobless claims, manufacturing and new home sales scheduled for Thursday may give indications of the health of the world’s biggest economy.
Federal Reserve Chair Janet Yellen finished two days of testimony to lawmakers on Wednesday signaling a cautious and uncertain view of the economy. Traders have reduced their wagers on higher borrowing costs, pricing in less than even odds of a move at least until February 2017.
The MSCI Emerging Markets Index rose 0.6 percent after rallying 3.7 percent over the previous four days to the highest close since June 9. Shares in Poland, the Czech Republic and Turkey climbed more than 1 percent.

Currencies
The pound rose 1.2 percent to $1.4884, its strongest level since Dec. 31. The Bloomberg British Pound Index, which tracks sterling against a basket of peers, gained 1 percent. The currency has strengthened about 3.8 percent versus the dollar this week.
“Even though it looks as though much of the ‘risk of Brexit’ has been priced out of markets, there remains plenty of scope for volatility on either outcome, albeit very much more on a ‘Leave’ than ‘Remain,’” Ray Attrill, global co-head of foreign-exchange strategy in Sydney at National Bank Australia Ltd., wrote in a note.
An overnight measure of pound-dollar volatility surged as traders sought protection from unusual price swings. The gauge, based on option prices, touched 119.7 percent Thursday, the highest since Bloomberg began collecting the data in 1998.
The yen tumbled 1.2 percent against the dollar and slid for a fifth day versus the euro, its longest losing streak since March.
The euro appreciated 0.8 percent versus the U.S. currency as the Bloomberg Dollar Spot Index dropped 0.5 percent. Sweden’s krona gained 1 percent. Mexico’s peso gained 1.3 percent and the ruble climbed 1.4 percent.
Taiwan’s dollar rose to its strongest level since August after overseas investors pumped $2.4 billion into the island’s stocks this month.
The MSCI Emerging Markets Currency Index advanced 0.6 percent to a seven-week high. Five days of progress have pushed it up 1.9 percent. South Africa’s rand jumped 1.2 percent.

Bonds
The yield on 10-year U.S. Treasuries increased by five basis point to 1.74 percent, after sliding to the lowest level since 2012 last week. The yield on similar maturity bunds rose four basis points to 0.1 percent.
Greek government bonds led the region’s peripheral securities higher after the European Central Bank made the nation’s debt eligible for collateral, allowing its banks access to cheaper refinancing.
Ten-year bond yields fell 14 basis points to 7.60 percent. Ten-year rates for Spain declined by three basis points to 1.46 percent, while those for Italy dropped three basis points to 1.40%.
The Markit iTraxx Europe Crossover Index, which tracks credit-default swaps on sub-investment corporate debt, dropped four basis points to 335 basis points. A gauge of swaps tied to investment-grade corporate debt fell one basis point to 77 basis points. Both indexes are at the lowest in about two weeks.

Commodities
West Texas Intermediate for August delivery gained 1.5 percent to $49.87 a barrel on the New York Mercantile Exchange. The contract lost 72 cents to $49.13 on Wednesday. Total volume traded was about 35 percent below the 100-day average.
Gold retreated 0.3 percent. Nickel and zinc fell at least 0.4 percent, while copper climbed 1.3 percent.