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All Overnight Action Is In FX As Market Reacts To Latest News Out Of The UK
After being solidly ignored for weeks, suddenly the Scottish independence referendum is all anyone can talk about, manifesting itself in a plunge in the GBPUSD which ha slide over 100 pips in the past 24 hours, adding to the slide over the past week, and is now just above 1.61, the lowest since November 2013. In fact, the collapse of the unionist momentum has managed to push back overnight news from Ukraine, major Russian sanction escalations, Japan GDP as well as global trade data on the back burner. Speaking of global trade, with both China and Germany reporting a record trade surplus overnight, with the US trade deficit declining recently, and with not a single country in the past several month reporting of an increase in imports, one wonders just which planet in the solar system (or beyond) the world, which once again finds itself in a magical global trade surplus position, is exporting to?
There is a fairly quiet session overnight with most of North Asia out on Mid-Autumn Festival. Markets are closed in China and Korea overnight with the latter only reopening on Thursday. In Hong Kong, the Hang Seng is down about 0.2%. China’s trade data and the second revision to Japan’s GDP are the main data releases overnight. On China, the trade surplus widened to a record $49.84bn in August (expectations of US$40bn). This was helped by a 9.4% yoy rise in exports (expectations +9.0% yoy) although imports surprisingly contracted by -2.4% yoy (consensus +3.0% yoy). In Japan, its second quarter GDP contraction was revised down further to -7.1% from its preliminary estimates of -6.8% on the back of the sales tax hike in April. Away from equities, Asian credit spreads are modestly tighter with the 10yr Treasury yield a basis point lower at just shy of 2.44%. Asian stocks little changed with the ASX underperforming. MSCI Asia Pacific up 0% to 148.5. Nikkei 225 up 0.2%, Hang Seng down 0.2%, Kospi closed, Shanghai Composite closed, ASX down 0.4%, Sensex up 1.1%. 6 out of 10 sectors rise with telcos, industrials outperforming and consumer, health care underperforming.
European shares fall, close to intraday lows, with oil & gas and travel & leisure sectors underperforming and tech, autos outperforming. The U.K. and Spanish markets are the worst-performing larger bourses, the Swedish the best. The euro is little changed against the dollar. 1 out of 19 Stoxx Europe 600 sectors rise; tech, autos outperform, oil & gas, travel & leisure underperform. 27% of Stoxx 600 members gain, 71.2% decline. Eurostoxx 50 -0.3%, FTSE 100 -0.9%, CAC 40 -0.3%, DAX -0%, IBEX -0.5%, FTSEMIB -0.2%, SMI -0%.
Sterling weakens after a poll showed a majority of voters in favor of Scottish independence. Spanish 10yr bond yields rise; Japanese yields decline. Commodities decline, with Brent crude, WTI crude underperforming and nickel outperforming. Brent fell below $100 a barrel for first time since June 2013. U.S. consumer credit due later.
Among the key events on this week's docket, the long-awaited release of Apple's new iPhone will certainly grab some attention tomorrow. On that note, our equity desk conducted a poll last week and of the 124 respondents surveyed, 66% of those have noted that they are going to buy the new iPhone and of those planning to buy 75% of those will be replacing their iPhone 5/5s. Let’s see what will be unveiled tomorrow but on the data front JOLTS report and UK Industrial Production are the main releases of the day. On Wednesday, we will get China's credit growth stats for August which will be interesting after a sharp decline in July. US wholesale inventories and French IP are also due on Wednesday. This then brings us to Thursday where Draghi is expected to give a keynote speech at a eurofi forum in Milan. We will also get inflation readings from China, France and Germany on Thursday. On Friday, the latest US retail sales data as well as U of Michigan consumer sentiment for September are due. We will also get IP data from the euro area and Italy but given deepening concerns around growth we suspect some focus will be on the EU finance ministers and central bankers meeting. We will also get the usual monthly data dump from China on Saturday with the release of retail sales, fixed asset investment and industrial production all due.
Market Wrap
- S&P 500 futures down 0.2% to 2002.4
- Stoxx 600 down 0.8% to 344.8
- US 10Yr yield down 3bps to 2.43%
- German 10Yr yield down 0bps to 0.92%
- MSCI Asia Pacific at 148.5
- Gold spot down 0.2% to $1266.7/oz
Bulletin Headline Summary from Bloomberg and RanSquawk
- GBP/USD draws attention, falling over 200 pips, as markets finally react to the risks surrounding the referendum on Scottish independence
- Looking ahead the calendar remains light with US consumer credit the only notable data point, with markets watching for further developments in Ukraine and Scotland
- Treasuries gain, led by 5Y and 7Y notes; 10Y yields holding near highest in a month amid focus on risks associated with impending end of Fed QE and USD IG corporate issuance surge.
- $58.1b of investment-grade bonds priced last week, most this year; $11.6b high yield, most since April
- Sterling dropped the most in more than a year after a poll by YouGov Plc showed the Scottish independence campaign gained a lead for the first time this year with the referendum due Sept. 18
- The U.K. government raced to put together a package of more powers for Scotland in a bid to persuade voters to reject independence
- China’s trade surplus climbed to a record in August as exports rose on the back of increased shipments to the U.S. and Europe, while imports fell for a second month as a property slump hurt domestic demand
- German exports rose above EU100b for the first time in July and the trade surplus climbed to an all-time high, even as escalating sanctions against Russia threatened trade flows
- Britain’s largest banks including Barclays Plc and Royal Bank of Scotland Group Plc have cut lending to consumers and businesses by GBP364.7b ($595b) in the past five years, KPMG LLP said
- While Obama says he can rally Sunni Arab states to help him defeat Islamic State militants in Iraq and Syria because “this is their neighborhood,” complex regional politics means it won’t be an easy sell, analysts said
- A cease-fire intended to stem months of bloodshed in eastern Ukraine is being tested as both the government and the pro- Russian separatists its army has been fighting report violations and casualties
- S. Truett Cathy, who became a billionaire as the founder of Chick-fil-A Inc., known for its “Eat Mor Chikin’” slogan and for staying closed on Sundays to reflect Cathy’s Southern Baptist faith, has died at the age of 93
- Sovereign yields mixed. Asian stocks gain; European stocks, U.S. equity-index futures decline. WTI crude, gold and copper higher
US Event Calendar
- 3:00pm: Consumer Credit, July, est. $17.4b (prior $17.255b) Central Banks
- 11:00am: Fed to purchase $950m-$1.15b in 2036-2044 sector
FIXED INCOME
The Short sterling curve bull flattened this morning as the latest polls suggest Scottish independence is a real possibility, which in turn prompted market participants to reassess expectations of BoE hiking rates and also frets over potential sovereign credit rating downgrades. As a result UK Gilts gapped lower at the open on debt quality concerns as should Scotland become independent then Scotland could brush off its share of UK debt which is believed the be in the region of GBP 150bln, which would sharply increase the debt-to-GDP ratio in Westminster. However, leading German Bunds higher in the process, Gilts have found strength on the suggestion of economic uncertainty in the UK and have since pared and surpassed the gap lower. Market participants also eye the remaining uncertainty in Ukraine with reports of fighting and shelling in the east of the county despite last week ceasefire, adding further pressure to market sentiment.
Fed’s Plosser (voter, hawk) reiterated that he would prefer that the Fed started to raise rates sooner rather than later, the economy has moved much closer to the Fed’s goals and keeping rates near zero until achieving them is a risky strategy. (RTRS/BBG)
EQUITIES
European stock futures (Eurostoxx 50 -0.28%) opened in the red, led down by the FTSE 100 with inflows in to safer assets also weighing on indices. Unsurprisingly UK equities (FTSE 100 -0.83%) are underperforming on Scottish referendum concerns, with markets particularly cautious on the like of RBS (-2.9%), Lloyds Banking Group (-3.2%) and SSE (-2.5%) due to Scottish exposure.
FX
The underperformer has been GBP/USD, falling over 200 pips to print a Nov’2013 low at one point, with the pair’s 1-month implied volatility at its highest level since July 2008, as the Latest YouGov survey suggests the Scottish Independence vote has the “yes” campaign on 51%, with the unionists on 49%, overturning a 22-point lead for the Better Together campaign in the space of a month. Notably, Morgan Staley suggest that GBP/USD could fall towards the 1.46 level on a “yes” vote for Scotland.
USD/JPY holds above the 105.00 handle following the disappointing overnight Japanese GDP reading (GDP Annualized SA (Q2 F) Q/Q -7.1% vs. Exp. -7.0% (Prev. -6.8%), which marked the worst contraction since Q1 2009. As a result the DXY-index remains just below multi year highs.
COMMODITIES
WTI and Brent futures trade lower, with Brent crude falling below the USD 100 bbl level, as Chinese Trade Balance data showed that the Asian giant has become a net exporter of oil for the 4th time this year, with reports of a delayed production cut in Saudi Arabia adding further pressure. Morgan Stanley also note that despite their view that signs are evident of fundamental improvement in global crude markets, headwinds such as rising supply need to be addressed before markets are in the clear.
Spot Gold has reversed the overnight strength to trade in negative territory with the market failing to find firm direction as the calming situation in Ukraine and possible stumbling block for the US economy, in the form of poorer-than-expected NFP data last week, remain in focus.
* * *
DB's Jim Reid concludes the weekend event recap
One story we've been secretly trying ignore in recent weeks as we've no real idea about the consequences (outside of a very bad Davis Cup tennis team for England) has been the Scottish referendum that's due to be held next week on September 18th. Until the last week or so all the polls have been suggesting a NO to independence was highly likely. However over the last 10 days momentum has changed and the polls have narrowed with the Sunday Times YouGov poll yesterday having the YES votes at 51% with the NOs at 49%. Other polls still have the NO vote ahead but its quite clear that the result is not as clear cut as it once had looked even if the YouGov poll has been subject to quite a lot of sampling changes in recent weeks. So far the only real macro market impact has been Sterling's decline from $1.7166 in early July to $1.6220 overnight (down 0.66% since Asia open but off the lows of the session). Some of this has been due to general Dollar strength but Sterling is down 0.33% against the Euro over the same period in spite of the recent ECB's actions and weak Euro data.
In response to the polls, the UK chancellor George Osbourne yesterday announced that over the next few days there would be plans set out on the transfer of more powers to the Scottish Parliament. The NO campaign will hope this reverses the YES momentum. So what are the implications of a YES vote? Well we don't really know as there will be a huge amount to negotiate post victory but there are some UK and non-UK centric considerations. In terms of the UK, the main consideration is the currency the Scots would use and the share of the debt they'd take. The two are tied as the YES campaign have threatened that if they aren't allowed to use Sterling then they won't take their share of the Debt. How they would borrow in international capital markets if they did that though is an interesting question. The NO vote has so far refused to budge on the issue of using Sterling though. Could the Scots use Sterling anyway without the backing of the BoE? Seems unlikely to be sustainable in our opinion. In the near-term the uncertainty has weighed on Sterling but if the YES vote win then maybe markets will eventually like the fact that the rest of the UK will more likely have right wing market friendly Governments in the future? But will this offset any extra debt that might be taken on?
Outside of the UK a YES vote might provide fuel for other dissatisfied regions in other parts of the world. In Spain the Catalans and Basques will be watching carefully. Perhaps even those in Flanders, Northern Italy and also the Venetians. So a lot at stake. There will be lots of polls this week so watch these and watch for the UK Government's new extra devolutions plans and see whether this renews vigour in the NO campaign.
Moving on to markets we have a fairly quiet session overnight with most of North Asia out on Mid-Autumn Festival. Indeed markets are closed in China and Korea overnight with the latter only reopening on Thursday. In Hong Kong, the Hang Seng is down about 0.4% but the HSCEI index is +0.2% as we type. China’s trade data and the second revision to Japan’s GDP are the main data releases overnight. On China, the trade surplus widened to a record $49.84bn in August (expectations of US$40bn). This was helped by a 9.4% yoy rise in exports (expectations +9.0% yoy) although imports surprisingly contracted by -2.4% yoy (consensus +3.0% yoy). In Japan, its second quarter GDP contraction was revised down further to -7.1% from its preliminary estimates of -6.8% on the back of the sales tax hike in April. Away from equities, Asian credit spreads are modestly tighter with the 10yr Treasury yield a basis point lower at just shy of 2.44%.
Taking a quick look at the disappointing payrolls last Friday, the headline number came in sharply below expectations (142k v 230k expected). Private payrolls also disappointed (134k v 214k expected). This was the weakest payrolls headline since December 2013 and after taking into revisions, the 3 month average has declined to 207k from 236k previously. Joe LaVorgna noted that the weakness was fairly broad based and seasonal adjustment issues don’t appear to be a main driver of the weakness. The unemployment rate fell a touch to 6.1% but 80% was due to labour force drop-outs. The average work-week was flat at 34.5 hours.
On the geopolitical front, the ceasefire that was agreed last Friday appears to be somewhat short-lived with reports overnight of a series of repeated breaches on Sunday. Indeed according to the New York Times, firefights had broken out near the rebel-held city of Donetsk as well as east of the key port city of Mariupol. The WSJ overnight noted that new EU sanctions on Russia will expand the number of Russian companies that are banned from raising long term funding from capital markets. The WSJ noted that Gazpromneft, Transneft, and Rosneft are new inclusions on top of the five state banks that have already been on the ban list since July. The new sanctions are expected to be implemented on Tuesday.
In other overnight stories, the FT noted that in the past few days FOMC officials have called for a new forward guidance language. Per the FT, a particular issue is that the Fed’s guidance of low rates for a “considerable time” after asset purchases ends in October. There’s little consensus yet on the new wording yet so the shift in language may not come until October. The September FOMC meeting in less than 10 days clearly will be another closely watched event.
Turning to the week ahead, despite the usual post payrolls data lull in the US there are perhaps enough to keep the markets going. The unveiling of Apple's new iPhone, German and French inflation, US retail sales, a key note address by Draghi, and China’s monthly data dump are some of the notable events this week. We will also wrap up the week with a meeting for EU finance ministers and central bankers in Milan on Friday.
As for today, we will get Germany's trade balance for July and France's business confidence for August. The long-awaited release of Apple's new iPhone will certainly grab some attention tomorrow. On that note, our equity desk conducted a poll last week and of the 124 respondents surveyed, 66% of those have noted that they are going to buy the new iPhone and of those planning to buy 75% of those will be replacing their iPhone 5/5s. Let’s see what will be unveiled tomorrow but on the data front JOLTS report and UK Industrial Production are the main releases of the day. On Wednesday, we will get China's credit growth stats for August which will be interesting after a sharp decline in July. US wholesale inventories and French IP are also due on Wednesday. This then brings us to Thursday where Draghi is expected to give a keynote speech at a eurofi forum in Milan. We will also get inflation readings from China, France and Germany on Thursday. On Friday, the latest US retail sales data as well as U of Michigan consumer sentiment for September are due. We will also get IP data from the euro area and Italy but given deepening concerns around growth we suspect some focus will be on the EU finance ministers and central bankers meeting. We will also get the usual monthly data dump from China on Saturday with the release of retail sales, fixed asset investment and industrial production all due.
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Another royal baby is on the way. For an independent Scotland, doesn't that count as "one less very expensive mouth to feed"?
Those reptile eggs hatch quickly.
It's really an orphan disquised as a royal baby.
If Scotland gains it's independence, couldn't the British Parliament just vote to give them the entire national debt on their way out the door??
I worry about things like this since the late 90s when Lucent was spun off from AT&T and handed a couple billion of AT&T's debt as a birthday present. If you've never heard of Lucent, there's a good reason why.
They sure do,Maybe thats why golds down for the big feed,Oh hang on;the blood of a sacrificed virgin is way more palatable,Hey there's a market.Lizards will burn.
just for the record, can i appreciate tyler and zh in putting out all the information nuggets for all these years.. i know i have learnt lots... props to the team
If they have any sense they'll stay out of the EU too. Scotland that is.
Scotland is socialist. Once the UK Nanny teat is cut off, they will need some entity to finance the 'free stuff'.
I won't deny that my fellow countrymen have a tendency towards communism. However, if, as you describe above, the "nanny teat is cut off" there is potentially a very bright future in the event that this happens. Without the welfare state funded by perpetual deficits (printed out of thin air by the Fractional Reserve fraud) then state incurred debt will either be not possible or significantly reduced. That can only be good.
So, soon the United Kingdom will only be England and Northern Ireland. Big deal!
At last the English can shrug off the burden.
Send Charles over to roam around with his walking stick and kilt. That'll appease them for another 100 years or so. NOT!
Queen's conversation with Cameron at Balmoral, courtesy of the NSA:
"You do know you will go down in history as the prime minister who lost the union," the Queen continued.
"Indeed. I am aware of that, ma'am."
"Well, what do you intend to do about it?"
"I'm not really sure there's much I can do."
"Then you'd better come up with something quickly. One will not be pleased if Scawtland goes feral."
"I suppose I could start by coming to the Braemar games with you, ma'am."
"I don't think that's a very good idea."
"How about a spot of fishing on the Dee?"
"I suggest you do rather more than that. The royal family has done its bit by instructing Kate to get pregnant again and I can promise you the Scawts will only ever get to see the baby in the pages of Hello! if they don't vote the right way. So just bugger awf back to Westminster. If you don't get this sorted in the next 10 days, you won't be coming back here next year."
http://www.theguardian.com/uk-news/2014/sep/08/kate-pregnant-cameron-que...
What?
"Speaking of global trade, with both China and Germany reporting a record trade surplus overnight, with the US trade deficit declining recently, and with not a single country in the past several month reporting of an increase in imports, one wonders just which planet in the solar system (or beyond) the world, which once again finds itself in a magical global trade surplus position, is exporting to?"
They are all exporting to ISIS.
ISIS is flush with cash.
I thought it was obvious.
It's utopia,Oh shit it's just a dream.
It's utopia alright, till I see Barry eat a BLT he is isis!
Yeah.....the cat is totally a muslim
No....I'm not taking questions.
Hey....it is what it is.
All fiat is heading to zero, the exact reciprocal of the price of precious metals. They will use any excuse to explain away the collapse, but never their own crony corruption.
damn looks to be same reading week after week. stocks will jump Gold will dump we see what they have planned on 9/11
The gap between us funnymoney fantasy and the rest of the world grows ever wider. Commodities down, foreign stocks down, us dollar up, us stocks barely a scratch off Friday's ramp.
5-yeardifference between us and row stock performance is 8% cagr. A relative doubling in 9 years! When will the US pay the price for their games and hubris?
Hello Scotsmen & Scotladies,
This may be the last chance the Lord gives you to break your shackles.And without shedding a drop of blood unlike earlier
Vote with your brains, and if the Spiritual Scotch helps, do imbibe it.
Didn't they (TPTB) force a re-vote when one of the peon (Ireland?) countries had the gall to vote "no" on joining the EU? That is pretty much the MO, just keep voting until you get the result you want. There isn't going to be any vote for independence that sticks.
This one wont be re-run, the Scots will bottle it and the Establishment won't want to give them another shot.
If Scotland wants independence then so be it, but sorting out the political and economic ties with the rest of the UK, may be difficult. Scotland has to be allowed to stand on its own two feet without the rest of the UK financially and economically supporting it. The Euro proves that more than one sovereign country cannot easily use the same currency.
Portugal, Ireland, Greece, Italy and Spain have discovered that you cannot have full independence and share a currency. Another problem is that if the UK Government is to agreeable to a separation, will Wales and Northern Ireland move towards independence? That might encourage similar movements in Catalonia, Belgium, Northern League in Italy, Basques, Cornish, and among the Poles. More on the issues surrounding the pound and an independent Scotland in the article below.
http://brucewilds.blogspot.com/2013/06/british-pound-and-independant-sco...
If you like your exports....
Seriously, you can't make this shit up, they serve it to you on a royal platter.
Wake up!
For those suffering from "exhaustion", I highly recommend kicking in a new gear.
Scotland can always auction off North Sea oil leases and there is a super-good market for its half of Britain's naval fleet of nuclear subs. how many of those should go to Scotland, in an equitable split of course?