Markets caught in limbo ahead of Brexit vote

Wall Street is battening down the hatches as Britons head to the polls Thursday to vote on whether to leave or remain in the European Union. Ahead of an uncertain result — and an uncertain reaction in global markets — U.S. stocks will likely stay in a tight range.

"People are going to try to speculate as to what the outcomes are going to be, but I think most people are going to be sitting on the sidelines until it happens," said John Bredemus, vice president at Allianz Investment Management.

"I think markets have priced in; most of it's not going to occur. I do think if there's Brexit, they do vote to leave, there's going to be some flight to quality," he said.

Ship preparing for storm
Natalie Fobes | Getty Images

The outcome is not expected until late Thursday ET, well after the U.S. market close. But investors have been preparing for a potential shock Friday.

Jeffrey Gundlach, chief executive officer at DoubleLine Capital, said Wednesday his firm is considering selling its position in European equities early Friday on a Bremain vote that keeps Britain in the European Union, according to Reuters.

Online currency broker FXCM raised required margins for the second time in less than a month for 18 major FX pairs, effective 5 p.m. ET on Wednesday, the news wire said.

Brian Hennessey, portfolio manager at Alpine Funds, told CNBC the firm has "stress-tested" its portfolio for exposure to Europe and created a list of stocks that may present buying opportunities depending on the outcome of the Brexit vote. Alpine has $4 billion in assets under management.

While stocks and other risk assets will probably fall sharply if Britain votes to leave the European Union, analysts note that central banks will likely intervene in an extreme situation.

"I think that should be very helpful," said Robert Tipp, chief investment strategist of Prudential Fixed Income. "I think the central banks obviously have a vested interest in keeping liquidity in markets."

Funds likely won't want to sell significantly ahead of a probable relief rally following a remain vote. To be sure, Tipp said the government bond market is priced for a remain result, while the "currency market is more split" and has "more potential for recovery in a remain scenario."

Late Wednesday, the YouGov poll for The Times showed 51 percent of Britons would vote to remain in the EU, versus 49 percent for leave, Reuters said.

The U.S. dollar index traded nearly half a percent lower, with the euro near $1.133 and the yen near 104.5 yen versus the greenback. Pound sterling rose to near $1.476 versus the greenback, after hitting its highest against the dollar since early January on Tuesday.

U.S. stocks gave up attempts at a third-straight day of gains to close lower Wednesday, weighed on by declines in energy stocks. In early afternoon trade, pound sterling briefly reversed earlier gains against the U.S. dollar after a fresh poll from TNS indicated a continued edge in support for leave over remain.

"If the polling data changes dramatically overnight and it looks like the leave vote is much stronger, I think you definitely see some downdraft in the market tomorrow," said Peter Coleman, head trader at Convergex.

As the world awaits the results of the EU referendum, traders will also watch for a number of U.S. data points due Thursday morning.

Weekly jobless claims are expected to fall to 270,000 from the prior week's 277,000, according to analysts polled by Reuters. New home sales are seen declining by 8.7 percent in May to a seasonally adjusted annual rate of 560,000, following a sharp jump the prior month to the highest level in more than eight years. Markit's initial U.S. manufacturing PMI is also scheduled for Thursday morning.

"I think those releases do get overshadowed," said Ben Mandel, global strategist at JPMorgan Asset Management. "They're not enough to be [a] big mitigating force."

Other notable events on the calendar include the first part of the bank stress tests after Thursday's market close and the Russell index rebalance after the close Friday.

It's widely expected that all U.S. banks will pass the capital requirement portion of the exam, ahead of the more complex second part scheduled for next week.

Quarterly earnings due before the bell Thursday include Accenture and BlackBerry. Sonic and Synnex are scheduled for release after the close.

Traders will keep a much closer eye on futures markets and currencies Thursday evening, as the final, official results of the EU referendum are not expected until late that night ET.

"People may think this may end with the vote, but this may just be the beginning of this whole process," Tipp said.

— CNBC's Jon Marino and Reuters contributed to this report.