Europe
As the Scottish line up at polling stations across the country, stock markets are broadly higher on optimism spread by perception of ongoing accommodation from the US Federal Reserve and the Bank of England to compliment more aggressive easy monetary policy from both the Bank of China and the European Central Bank.
The final Scottish referendum decision is expected around 7am BST. Voting ends at 10pm tonight and the first regional outcomes will start be released around 2am with the last including some of the largest regional outcomes expected to be announced by 6am. So really any OTC markets like FX could well be making directional moves from 5-6am as some traders pre-empt the final confirmation.
The widespread assumption south of Hadrian’s Wall, at least in the City is that the Scots will vote “No” to independence purely to avoid the difficulties of the separation. The risk is that north of the border the feeling is that independence and self-determination in itself is worth the trouble.
There seems to be a good amount of complacency in markets on the referendum result which could feed into a more exaggerated response if there is a ‘Yes’ vote and perhaps a more muted one should it be a “No”.
The FTSE 100 is less than 100 points from multi-year highs, if investors were truly taking precaution over the result you’d imagine it’d be a bit lower.
MostFTSE 100 companies don’t do a lot of business in Scotland but the uncertainty of a “Yes” vote could push stock prices lower and the stock price declines of those businesses who have strong ties could easily do substantial damage to the market as a whole.
These moves could be all the more pronounced with Scottish–based businesses Royal Bank of Scotland Group PLC (LONDON:RBS) , Lloyds Banking Group Plc (LONDON:LLOY), Standard Life Plc (LONDON:SL) and Aberdeen Asset Management Plc (LONDON:ADN) all among today’s top risers.
GBPUSD has traded higher in the last week and is back above 1.63 to the dollar the price before the YouGov poll put the “Yes” campaign ahead which really doesn’t suggest too much concern. Volatile days can see 300 pip swings in FX markets, It doesn’t seem out of the realm of possibility that a ‘Yes’ vote would cause a total capitulation in cable and see it down 800 pips in the days following to 1.55.
The ECB announced a new system for rotations to go into effect once Lithuania joins the currency bloc in the New Year whereby bank governors will give up voting rights every few months. The governors are split according to whether they represent one of the largest five or the remaining fourteen countries and voting duties are rotated split between the two groups.
Stocks got a pop after the new ECB rotation systems were announced with the idea that the system removes a little bit of power from Germany and Jens Weidmann, Governor of the Bundesbank and typically the most hawkish anti-QE member of the bank’s Executive Board.
It would definitely boost the chances of QE if Weidmann and Germany weren’t voting but it seems hard to believe the other members would vote for QE without knowing they had Germany’s consent especially given that it’s not been signed off by the German constitutional court as even legal.
Banks took 82.6bn euros against estimates of closer to 150bn in the ECB’s TLTRO program. The poor take up of the TLTRO suggests it might be blunt policy tool and makes outright QE more likely because investors will start to expect policy action with a bit more vigour.
Based on recent comments, there had been some speculation that the Swiss National Bank would switch to negative rates to fend off the recent declines in the euro after the ECB went to NIRP and announced their asset purchase program. The SNB held off going to NIRP so and EUR/CHF is moving back towards the 1.20 peg.
Gold miners Randgold Resources (LONDON:RRS), Fresnillo Plc (LONDON:FRES) and Polymetal Intl Plc (LONDON:POLYP) were in the red alongside the precious metal which is at its lowest price since the start of the year.
US
The Dow Jones Industrial Average made new all-time highs yesterday and the S&P 500 may well have followed suit by the end of today’s US trading session.
Alibaba Group Holdings Ltd (NYSE:BABA) is expected to finalise its IPO price today after the New York close, it is currently in a range of $66-68 per share. The top of that range would raise almost $22bn and if underwriters exercise an option to sell more, it could become the biggest IPO ever.
A price of $66 could put the Price earnings ratio of Alibaba at close to 41, much higher than the S&P 500 average of 19 but comparable with other tech growth stocks like Facebook Inc (NASDAQ:FB) whose P/E is over 80 and Amazon.com Inc (NASDAQ:AMZN) at 135 by some estimates.
Alibaba is growing fast, revenues grew by 49% last year and the numbers are not small, in the second quarter it earned an impressive profit margin of $2bn on $2.5bn in revenue. The company already turns over $250bn in merchandise so stock really becomes a proxy for Chinese economic growth and domestic consumption because to keep growing when the sales are already this big, the whole Chinese economy will have to grow with it.
Oracle Corporation (NYSE:ORCL) is expected to have earned 64c per share on revenue of $8.78bn reporting after the close. Shares recently stalled out at just above $43 and failed to break through on a second attempt mimicking similar price action in the S&P 500. The company continues to growth both top and bottom lines but missed estimates in the last quarter as like others in the tech space, the company tries to get a foothold in cloud computing.
FX
The US Dollar was weaker across the board today except against the Japanese yen which made a high of 108.96, 4 pips shy of 109 and 14 pips shy of 110 many people’s long term target for the pair.
Renewed confidence in a Scottish “no” vote after the latest set of polls sent GBP/USD surging 120 pips today despite a slight slowdown in annual retail sales growth in the UK.
EUR/USD and EUR/JPY were also higher despite a poor TLTRO take-up on US dollar and Japanese yen weakness.
Commodities
Silver made a low just 10c per oz above its June 2013 low but pulled higher later in the session.
Copper was trading lower on the missed Chinese housing data despite the PBOC stimulus efforts.
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