Europe
After a mixed start European markets have moved lower throughout the day with the FTSE 100 leading the declines after a weekend poll by YouGov put the “Yes” vote for Scottish Independence ahead in the polls for the first time.
Having pretty much dismissed the prospect of a “Yes” vote for some months, assuming that Scottish voters would vote according to generally accepted economic logic, markets haven’t reacted well to this new dynamic and the London market has been hit the hardest with share price declines the sharpest in companies with significant exposure to the Scottish economy.
Amongst the hardest hit have been defence contractors Babcock International Group (LONDON:BAB), who have contracts to service the Trident nuclear submarine fleet, and BAE Systems (LONDON:BAES) who have contracts to build new ships on the Clyde.
Also being hit hard, Royal Bank of Scotland Group PLC (LONDON:RBS), Lloyds Banking Group Plc (LONDON:LLOY) and Standard Life Plc (LONDON:SL) are nursing significant losses.
The risk is that having finally woken up to the prospect of a Scottish secession, today’s losses could be the tip of a very large iceberg, particularly if markets realise that any new Scottish government doesn’t have a credible fiscal plan in the event they do win the vote.
While one could argue that today’s losses are an over-reaction to a fairly unrepresentative opinion poll they certainly aren’t as SNP Deputy Leader Nicola Sturgeon would have you believe, a reflection of the strength of the Scottish economy, or any economy for that matter.
Any increase in political or economic uncertainty tends to make investors nervous, and a Scottish “Yes” vote would create that in spades, which suggests we will continue to see further weakness, due to the numerous unknowns, if the polls continue to move in the “Yes” camps favour.
If anything a week or so of volatility might be a good thing if it concentrates minds on both sides of the political debate, of the potential economic consequences and costs that a “Yes” vote might bring. With the final vote still 10 days away it is quite likely we can expect to see more volatility as the polls swing back and forth.
Primark owner Associated British Foods (LONDON:ABF) was another underperformer despite posting profits in line with full year expectations.
On the plus side chipmaker ARM Holdings (LONDON:ARM) is doing well ahead of tomorrow’s big Apple Inc (NASDAQ:AAPL) launch event, of what is expected to be its latest iPhone 6. ARM Holdings is a key supplier of chipsets for Apple products so a positive day tomorrow could well see positive bleed through effects.
US
US markets opened lower today after Fridays late rally saw record closes for the Dow 30 and S&P 500, as Scottish referendum vote fears aside Europe’s broader markets have also slipped back after Chinese economic data for August showed an unexpected drop in imports, while the fragile Ukrainian ceasefire was also making markets nervous.
The announcement of new EU sanctions is also serving to weigh on European investors over concerns that Russia could introduce countermeasures and reinforce the downward cycle for growth.
In company news Ford Motor Company (NYSE:F) slid back after being downgraded by Morgan Stanley, while Yahoo! Inc (NASDAQ:YHOO) shares are likely to be in demand given the latest details of the Alibaba IPO.
FX
In the currency markets today the GBP/USD has been the centre of attention for all the wrong reasons, after the latest independence opinion poll showed the “Yes” campaign in the lead. The biggest declines were against the US dollar and the euro as markets start pricing in potential break-up risk costs.
The US Dollar has had a positive day today posting 14 month highs against a basket of currencies, posting the most gains against the pound and the Australian dollar. The EUR/USD continues to find support above the 1.2920 area which has acted as support over the last three days.
Commodities
Brent Oil prices have continued to weaken today after this morning’s Chinese economic data showed that demand from one of the world’s biggest consumers was falling. They fell to 14 month lows after Chinese imports in August declined 2.4%, increasing concerns about the internal resilience of the Chinese economy.
US Crude Oil prices are also under pressure on the back of last week’s weak payrolls number, though they remain above their lowest levels this year.
Gold prices have continue to drift lower in the face of a resurgent US dollar as investors continue to dismiss concerns about geopolitical risks and easy monetary policy.
CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.