Financial markets got a wake-up call this morning to the potential fall-out from a “yes” vote at the Scottish independence referendum in 10 days’ time.
The pound has slid sharply on the currency markets while the FTSE 100 has also come under pressure as companies with a significant Scottish presence have seen their shares prices slide in early trade this morning.
Biggest fallers have been Standard Life Plc (LONDON:SL), Lloyds Banking Group Plc (LONDON:LLOY), Royal Bank of Scotland Group PLC (LONDON:RBS), Babcock International Group (LONDON:BAB) and Weir Group (LONDON:WEIR), as markets start pricing in elements of uncertainty with respect to those parts of the business that are domiciled in Scotland.
A lot of this uncertainty stems from concerns about the likelihood of what might transpire in the event of a “yes” vote.
Today’s volatility hasn’t been helped by the shambolic response from the “No” campaign who seem to be bending over backwards with offers of new powers with every shifting opinion poll. This has played right into the hands of the “Yes” campaign and drawn attention away from the economic shortcomings of their own fiscal plans.
The fact is, if the polls are right, Scotland seems intent on putting its faith in a promise of better times through independence from a man who only a few years ago was touting the euro as the answer to Scotland’s economic problems.
In 1999 in a speech to a Brussels think tank Alex Salmond stated that “the euro is an example of why Scotland needs membership status so that it can take a decision on entry into the single currency.''
Given recent events it is perhaps fortunate that Alex Salmond wasn’t in a position to deliver on this, but surely you have to ask if he was wrong about the euro, he could well also be wrong about the benefits of Scotland being an independent nation.
Unlike the euro question it didn’t really matter that he got that call wrong as Scotland weren’t in the euro. It will matter a great deal to Scotland if he gets this one wrong, because unlike the euro he won’t be able to change his mind, and Scotland and the rest of the UK will be stuck with the consequences for years to come. The stakes for next week’s vote just got a whole lot bigger and this morning’s market reaction would appear to reflect that.
US markets look set to open lower this morning after Friday’s record finish, pressured by concerns here in Europe about the resilience of the Ukraine ceasefire as well as China’s economic outlook. This morning’s trade data showed a decline in imports in August suggesting once again that internal demand in the domestic economy remains weak.
Japanese GDP also showed significant signs of weakness reinforcing speculation that the Bank of Japan might well have to stimulate demand further with further easing measures.
This weakness in Europe is likely to translate into a slightly weaker US open when US markets reopen today.
The main focus of attention in the US is expected to be on tomorrow’s Apple Inc (NASDAQ:AAPL) event as markets look forward to what is expected to be the highly anticipated iPhone 6 launch, while Alibaba share price was set between $60 and $66 at the weekend in the lead-up to an IPO that will dwarf Facebook (NASDAQ:FB)'s launch over two years ago.
- The Dow 30 is expected to open 32 points lower at 17,105
- The S&P 500 is expected to open 3.7 points lower at 2,004
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