Yellen warns on Brexit, as Draghi says ECB is ready to take action -as it happened

Graeme Wearden (until 2.45) and Nick Fletcher

from on 2016-06-21 17:12 (#1HW2Q)

Markets are still jittery ahead of Thursday's referendum vote

6.12pm BST

After a shaky start it looked like markets would fail to build on Monday's strong gains. But shares moved into positive territory by the close as Wall Street edged higher and polls indicated the Remain camp was slightly ahead. But investors were still uneasy ahead of Thursday's vote. The final scores showed:

5.33pm BST

Janet Yellen has now finished her testimony.

5.15pm BST

Another warning there may be liquidity problems on Friday following the referendum result:

Tweeted BAML this morning, now UBS reminding clients of potentially dodgy liquidity Friday. pic.twitter.com/4HkcdiTm3A

4.42pm BST

European markets closed higher, but Joshua Mahony, market analyst at IG, expects further volatility ahead of the EU vote:

The prospects of a Brexit appears to be on a knife edge just two days before the UK goes to the polls. The IG Survation poll shows a clear narrowing between 'remain' (45%) and 'leave' (44%) campaigns, with the result likely to be dictated by the factors such as turnout and the action of the so far undecided (11%) voters.

Yesterday may have seen a sharp relief rally in GBPUSD as 'leave' swung back into the lead, yet the increasingly 'too close to call' nature of this referendum should provide a highly unpredictable and volatile week in the markets. While there is only a marginal lead for 'remain' when polls are concerned, the IG Binary (currently 72% remain) shows that the money is clearly backing a decision to remain in the EU.

4.40pm BST

Back with US Federal Reserve chair Janet Yellen's testimony to Congress. Asked further about Brexit Yellen says:

It could launch a period of uncertainty [with] negative economic consequences for the UK spilling over into Europe.

4.18pm BST

Fund manager Hargreaves Lansdown is the latest firm to say it will extend opening hours and has tripled its number of dealing staff to deal with the aftermath of the EU referendum vote.

4.02pm BST

Could we see an emergency bank holiday in the event of Brexit? Or even a Sunday trading session. Joe Rundle, head of trading at ETX Capital, said:

George Soros is correct to say that a Brexit could lead to a catastrophic day for the pound but preparing for a re-run of Black Wednesday is not easy.

Very few of those working on trading desks in 1992 are still in the City so there is something of the unknown about what's coming. Even the dark days of Lehmans are a distant memory for most traders. If Britain votes out, it's fair to say we will not have seen a day in the markets quite like it.

3.52pm BST

Yellen had said at previous testimonies that the Fed was looking into whether negative rates would be legal. Asked for an update she says:

We have the legal basis to pursue negative rates but it is not something we are considering or looking at.

3.41pm BST

Back with Yellen and the Fed chair says a UK exit from the European Union could bring a period of uncertainty and financial volatility and affect the US outlook. She said the banks had put in place enhancements to liquidity [in the case of Brexit].

#Fed Chair #Yellen testimony strikes highly cautious tone similar to her #FOMC press conference comments

3.40pm BST

In another sign of mounting concern over Thursday's vote, global law firm Dechert has set up a new hotline for clients who need expert advice about Brexit.

They'll be staffing it with lawyers, who can explain the legal implications if Britain votes to leave the EU.

Clients will need to react to questions from employees, shareholders and investors, as well as assess which areas of their businesses would be most at risk.

At Dechert we realise that speed will be of essence in the days following the referendum to avoid such legal uncertainly impacting negatively on our clients and that is why we are creating the tools to allow clients to have access to the expertise they will need.

3.37pm BST

Draghi is quizzed further on Brexit and what problems he foresees.

He says:

3.17pm BST

Back with Draghi on Brexit:

Draghi: There are extensive consultations of all central banks in the world and the IMF, but no plans and no commitments #Brexit

Draghi: No Plan To Work With UK On Brexit -- BBG

3.07pm BST

Federal Reserve chair Janet Yellen has again warned of the risk of the UK voting to leave the European Union. In her testimony to Congress she said:

In the current environment of sluggish growth, low inflation, and already very accommodative monetary policy in many advanced economies, investor perceptions of and appetite for risk can change abruptly. One development that could shift investor sentiment is the upcoming referendum in the United Kingdom. A U.K. vote to exit the European Union could have significant economic repercussions.

The latest readings on the labor market and the weak pace of investment illustrate one downside risk--that domestic demand might falter. In addition, although I am optimistic about the longer-run prospects for the U.S. economy, we cannot rule out the possibility expressed by some prominent economists that the slow productivity growth seen in rece

Although concerns about slowing growth in China and falling commodity prices appear to have eased from earlier this year, China continues to face considerable challenges as it rebalances its economy toward domestic demand and consumption and away from export-led growth.

The FOMC continues to anticipate that economic conditions will improve further and that the economy will evolve in a manner that will warrant only gradual increases in the federal funds rate. In addition, the Committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run because headwinds--which include restraint on U.S. economic activity from economic and financial developments abroad, subdued household formation, and meager productivity growth--mean that the interest rate needed to keep the economy operating near its potential is low by historical standards.

2.58pm BST

George Soros has warned of the dangers of a "Black Friday" for sterling in the event of a Brexit vote, and now Ladbrokes is offering odds of 3/1 on that happening.

It will pay out if the pound falls by more than 15% against the dollar in the 24 hour window between midnight on the 23rd and 24th in the event of Brexit. Ladbrokes said:

Remain gained more ground over leave during trading on Tuesday, with the latest Brexit barometer reading showing a 78% chance of a remain outcome, up from 74%, or 2/9 in betting terms, ahead of leave at 10/3.

Alex Donohue of Ladbrokes said: "In the event of Brexit we're not ruling out Black Friday at all. Britain has to vote to leave first however, and our barometer continues to tick round in favour of remain hour by hour."

2.55pm BST

Yellen is delivering the Semiannual Monetary Policy Report to the Congress, and is likely to repeat the caution expressed by the Fed last week. The bank was concerned about weakness in the global economy, poor recent jobs figures and of course, the risks posed by the outcome of the UK referendum.

The caution contrasted sharply with a number of hawkish comments made by Fed members in the run up to the disappointing non-farm payroll numbers. Analysts have gone from predicting three or four US rate rises this year to perhaps one at most.

2.52pm BST

There's a brief moment of levity in Brussels, as Mario Draghi's mobile phone goes off as he's answering a question on the eurozone economy.

Draghi's mobile phone goes off in hearing. Probably Carney pic.twitter.com/gSCv0vS49A

Disappointment: Draghi's phone rings during the monetary dialogue in the EP and no, the melody is not Beethoven's Symphony No. 9

2.50pm BST

Ahead of the latest testimony from US Federal Reserve chair Janet Yellen, Wall Street has opened in positive territory.

The Dow Jones Industrial Average is up 26 points or 0.14% while the S&P 500 opened up 0.13% and Nasdaq 0.25%.

2.39pm BST

What does Mario Draghi mean when he says the European Central Bank is ready for "all contingencies" following Thursday's vote?

Well, the ECB is likely to unleash every weapon at its disposal to prevent a market crash, and prevent the financial system seizing up.

"If needed, it's secured that neither English nor European banks will have liquidity shortages".

2.26pm BST

Here's a video clip of David Cameron's lunchtime skit at Downing Street:

David Cameron: Brits don't quit - video https://t.co/YVDqhCeSVy

2.22pm BST

Mario Draghi, head of the European Central Bank, has told the European Parliament that he is ready to take action if Britain votes to leave the EU.

At the same time, uncertainty remains high and downside risks are still significant due to the continued fragile state of the global economy and geopolitical developments.

We will closely monitor the evolution of the outlook for price stability. We stand ready to act by using all the instruments available within our mandate, if necessary, to achieve our objective. In particular, the ECB is ready for all contingencies following the UK's EU referendum.

#Draghi testimony to European parliament: says further stimulus is in pipeline. Action needed to boost investment https://t.co/MF67WiEip3

2.11pm BST

Time for a quick catch-up.

The pound has clambered to its highest level against the US dollar since early January today, as international investors continue to expect a Remain campaign victory in Thursday's EU referendum.

1.58pm BST

The pound has dropped back after David Cameron made a solemn plea to the country to vote Remain.

Speaking (unexpectedly) outside Number 10, the PM said the economy will be stronger if we stay, and weaker if we leave. He also cited national security, warning that it will be harder to keep the country safe outside the EU.

"For you, for you country, vote Remain," Cameron says in solemn N10 address focusing on economy and security.#UKref #Brexit

"Brits don't quit. we get involved, we take a lead.." says @david_cameron to the nation: pic.twitter.com/qoebDTiSI6

Cameron was making a personal appeal to older voters. He insisted, "Britain doesn't quit;" said EU was best way of upholding our values.

1.36pm BST

Hello... David Cameron is speaking outside Downing Street right now.

He's explaining why Thursday's vote is so crucial economically, and for national security.

1.35pm BST

A new survey from Survation has shown that the Remain campaign has 45% support, with Leave very close behind on 44%.

1.29pm BST

Larry Summers, the former US Treasury secretary, has joined the ranks of international experts warning against Brexit.

First, unlike almost all other economic policy choices, Brexit is irreversible. Franiois Mitterrand's lurch toward socialism in France, Ronald Reagan's excessive tax cuts in the U.S., and Japan's encouragement of bubbles were all egregious errors, but all were reversed, albeit not before substantial damage had been done. Divorce can be reversed by remarriage if regretted. There is no reversing Brexit if it proves unwise. Indeed, given the E.U.'s very strong incentive to discourage further dissolution, it is far from clear that there would even be concerted efforts to minimize its cost.

Second, markets are likely to suffer extraordinary volatility in the wake of Brexit. A Black Friday could follow referendum Thursday. It is likely that foreign investors in British stocks would lose 15 percent off the bat, adding together market declines and currency losses. This is a judgement supported by the gyrations in markets induced by relatively small fluctuations in the perceived chance of Brexit and by the very high prices commanded by out of the money options. The truth is that even with all the regulatory changes that have been put in place, we do not know for sure how the financial system will respond. A return of systemic risk as large losses lead to cascading liquidations cannot be ruled out. At a time when central banks have far less ammunition than they did in 2008, the consequences could be grave.

Markets are likely to suffer extraordinary volatility in the wake of #Brexit. My latest blog posting: https://t.co/xEaQZO5cFB

1.19pm BST

The small rally in the pound today shows that Brexit fears are easing today, says Bill O'Neill, head of the UK Investment Office at UBS Wealth Management.

"Markets are now assuming a remain outcome, with sterling edging up slightly against the dollar this morning following the significant gains of yesterday.

"Polls released overnight suggest a swing back to show a mixed picture, but there is a sense that the momentum favouring leave has been halted. Additionally, betting odds are now also pointing to that outcome. It is worth bearing in mind that the odds have consistently been in favour of remain, despite the narrowing seen last week.

1.05pm BST

The US stock market is expected to open calmly in 90 minutes time.

The main indices predicted to rise by around 0.4%, as investors wait to hear from Janet Yellen, Fed chair, when she starts testifying to the Senate banking committee at 3pm BST (10am local time).

US Opening Calls:#DOW 17870 +0.35%#SPX 2092 +0.42%#NASDAQ 4420 +0.45%#IGOpeningCall

12.18pm BST

JP Morgan have done us a big favour by working out when the key EU referendum results will come.

Using data from the University of Bristol, they've identified the most pro-Remain and pro-Brexit areas of the country.

11.57am BST

Veteran US investor Wilbur Ross has revealed that the looming EU referendum has deterred him from buying assets in Europe.

Speaking on CNBC, Ross also accused George Soros of "exaggerating", in The Guardian today.

How #Brexit vote is affecting billionaire Wilbur Ross's decisions: "We've held off on investments we've thought about making" in Europe.

Wilbur Ross: " There is a tremendous amount of short positions on the pound & the Euro ... So George (Soros) may be exaggerating a bit."

10.52am BST

Boom! The pound has hit its highest level since the start of the year, in a fresh signal that Brexit fears are easing.

Sterling has jumped by almost 0.5% against the US dollar to $1.4781, a level last seen on 4 January - before the whole dratted EU referendum campaign began.

JUST IN: The pound climbs to its highest level since #EUref date was set, reaching $1.4783 https://t.co/T7EJtLTotv pic.twitter.com/0WthYRCXR3

10.40am BST

City traders need to set their alarm clocks extra early on Friday morning. Assuming they go to bed at all.

Fixed income and derivatives platform Tradeweb has announced it will open for business from 4am on Friday morning, as referendum results will be coming in through the night.

10.25am BST

Shares in London are recovering from their early losses, on the back of a decent set of financial results from Whitbread (which owns Costa Coffee and Premier Inn).

Investors are also digesting the news that David Beckham has backed the Remain campaign (an interesting way of marking the looming 18th anniversary of his freekick against Columbia in the 1998 World Cup)

Referend it like #Beckham ? pic.twitter.com/200RWXFamh

After a barnstorming day yesterday markets are, unsurprisingly, much quieter, although the lion's share of the stock market gains seen yesterday remain intact. Perhaps investors are exhibiting signs of fatigue with the ongoing Brexit debate, with fresh polls and the commitment of a certain Mr D Beckham to the Remain campaign providing little spark.

However, sterling remains in demand against both the euro and the dollar, an indication that markets remain confident about the outcome. Away from Brexit, Whitbread has soared to the top of the FTSE, as a return to solid growth for Costa Coffee assuages fears that the hospitality firm's growth engine is sputtering.

10.09am BST

Those disappointing UK public finance figures mean Britain's actually borrowed 200m more this year than in 2015-16.

In the 2016/17 financial year so far the UK has borrowed an extra 0.2 billion, or 0.8% compared with the same period in 2015. #Austerity

"The impending EU referendum vote has contributed to an uncertainty that has resulted in a sluggish UK economy, therefore it was imperative that the Chancellor put public sector finances at the top of his priority list for May 2016. An increase of 0.2 billion in public sector net borrowing in the current financial year-to-date, when compared with the same period in 2015, illustrates that he has done quite the opposite and has taken his eye off the economic ball."

"Whatever the result on Friday morning, whether we remain in or leave the European Union, it is vital that Government devises a comprehensive and rigorous strategy to kick-start a faltering economic recovery.

9.50am BST

Back to the referendum....and chancellor George Osborne has seized on the latest warnings from economists:

Nouriel Roubini,who predicted the global financial crisis, says Brexit could tip UK into recession & cause significant damage to employment

George Soros who predicted fall in sterling on Black Wednesday, warns Brexit leads to Black Friday & makes us poorer https://t.co/wz9AabvixI

9.41am BST

Here come the latest UK public finances.....

... and they show that Britain borrowed 9.14bn in May, to cover the gap between tax receipts and government spending.

9.19am BST

Newsflash from Germany:

The German constitutional court has rejected attempts to block the European Central Bank's bond-buying rescue plan, the Outright Monetary Transactions scheme.

*GERMANY'S TOP COURT REJECTS CHALLENGE TO ECB'S OMT PLAN

Germany's highest court says Bundesbank may take part in #OMT if volume of buys LIMITED and purchases not announced in advance.

German Constitutional Court says #ECB's OMT program is legal but adds conditions. It's a "yes, but", as expected. Let's move on now.

9.04am BST

Some City experts are concerned that investors may be too complacent about Thursday's referendum.

Joe Rundle, head of trading at ETX Capital, warns that the markets could be overreacting to a few polls putting Remain in the lead.

Investors are rolling the dice on Britain choosing to remain part of the EU but there is still plenty of opportunity to get burned. The polls are close and there is still every chance of a Brexit, despite the swing towards the In camp over the last few days.

Traders betting the farm on a sterling rally happening on Friday should remember just how wrong polls were at the last General Election and just how far the pound could drop if Britain votes out.

Also... Yes, there will "probably" be an on the day outperformance for the status quo. But that's a "probably". We don't have much data!

One small step for Brexit polls, one giant leap for markets https://t.co/P4z9Gxlr9F via @GoldRiva @Birdyword @WSJ pic.twitter.com/Xl5Q75gZEI

8.59am BST

Bank of America has warned its customers that it could be tricky to trade on Friday.

It fears that the huge interest in the EU referendum will make it harder to get accurate, fast quotes and execute orders as fast as usual.

It's Bank of America's turn#Brexit pic.twitter.com/ZWiG7wNdoL

8.43am BST

Investors are digesting two new opinion polls this morning, which give conflicting views on the referendum race.

The currency continues to reflect market sentiment ahead of the vote and as new polling information is released, we could see further volatility in the currency over today.

8.22am BST

Sterling has touched a new seven-week high this morning, extending yesterday's recovery.

The pound hit $1.4740 against the US dollar, it's best level since the start of May. Yesterday it surged by around three cents, in its strongest rally in almost eight years.

8.20am BST

London's stock market is falling in early trading, as traders get another dose of Brexit jitters.

The FTSE 100 index had shed 40 points in the first few minutes, a drop of 0.6%, to 6165 points.

8.09am BST

Nouriel Roubini, one of the world's most famously pessimistic economists, has urged the UK not to quit the EU.

Roubini won the nickname "Dr Doom" for his dark predictions in the run-up to the financial crisis, and was proved right when the 2007 credit crunch struck, leading to the collapse of Lehman Brothers in 2008.

Brexit would cause significant damage to the UK economy & to the employment & well being of Britons. The UK is much better off inside the EU

Brexit could stall the UK economy and tip it into a recession as the shock to business and consumer confidence could be severe

The UK - having large twin current account & fiscal deficits - may risk a sharp currency fall & a sudden stop of capital following Brexit

Roubini's view -significant as it explodes "economists are all EU-funded and uselessly failed to predict crash" meme https://t.co/QznOxAeiKn

They love my beautiful mind. I am ugly, but they're attracted to the brains. I'm a rock star among geeks, wonks and nerds.

Vote for a united country that reaches out to the world.
Vote Remain
Tomorrow's Guardian pic.twitter.com/LD32hU9ukq

7.36am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

With two days to go, Britain is still locked in its referendum bubble. And investors around the globe are pressing their noses against the glass, wondering whether the UK will take the historic step to leave the European Union.

Financial markets appear to be taking the view that the race may well already be run, which given the twists and turns seen already in this campaign may well be extremely far sighted, or dangerously premature.

With more polls due out later today we can expect to see further volatility unfold in the event of a move either way.

UK FTSE futures show bit of money off table again today after #Brexit polls mixed & yesterday's stellar rally

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