This page has been archived and commenting is disabled.
Scottish Jitters Past Peak?
The US dollar is mostly softer, but a consolidative tone continues. The news stream is light. Participants are still trying to navigate this week while looking at next week's critical events.. These include the Scottish referendum, FOMC and SNB meetings, Sweden's election, and the launching of the ECB's TLTRO facility. Catalonia's parliament will decide whether to authorize a referendum (early November), even though Madrid has rejected it.
There seems to be a reasonable chance that the anxiety induced by last weekend's YouGov poll showing a majority favored Scottish independence is past its peak. Three developments point to this possibility:
1. Other polls show the "no" camp still with a slight majority.
2. RBS, Lloyds and Standard Life have reportedly indicated that if Scotland votes for independence, they will consider moving their headquarters to London.
3. It does not fully appreciated, but the Scottish National Party confirmed last night (UK Telegraph) that the Northern Isles, like Shetland and Orkney could opt out of an independent Scotland (separate country or remain with the UK) They would retain control over a large part of the North Sea oil and gas that was ostensibly going to fund that new independent Scotland.
Sterling itself staged a key reversal yesterday, making new lows for the move, down to almost $1.6050 and then rebounding to $1.6230 and closed above the previous day's high. There has been a little follow through buying that lifted sterling to $1.6255. This represents a new high on the week. It means that the gap created by the sharply lower opening in Asia on Monday has been entered, but not closed. It extends to last Friday's low just above $1.6280.
Recall sterling fell a bit more six cents from the middle of July that the end of August. It fell roughly another six cents since. The first half of the move was seemed to have been about technical profit-taking, softer economic data, and "temporal inconsistencies" with forward guidance. The second half of the move was sparked by the surging US dollar and Scottish anxieties. The $16.280 area also corresponds to a retracement objective of the last leg down. Above there, there is potential toward $1.6350. Ideas that a "yes" vote would hit the UK economy and push out the first rate hike means that a "no" vote would see the UK debt market come under stronger pressure.
There are four other developments that are on international investors' radar screens today. First, Australia reported a too-good-to-be-true jobs report, and the knee-jerk positive reaction that lifted the Aussie above $0.9200 was quickly reversed. It was pushed to $0.9125 before finding a good bid. Australia reported 121k increase in employment. This consisted of almost 107k part-time positions. The statistical agency confirmed its figures, but the investors see some sort of statistical quirk. The unemployment rate fell from 6.4% to 6.1%, and the participation rate increased to 65.2% from an upwardly revised 64.9%.
Second, China reported subdued inflation in August, and this boosts speculation that this gives officials more space to pursue stimulative policies. August consumer prices rose 2.0% from a year ago, down from 2.3%, and lower than expected. The pace of food inflation cooled to 3% from 3.6%. Non-food prices increases slowed to 1.5% from 1.6%. The pace of producer price deflation quickened to -1.2% from -0.9%. It has not been positive for nearly two years.
Third, deflationary forces returned to Sweden. August CPI is -0.2% year-over-year from a flat reading in July. The year-over-year rate has been negative for seven of the past 11 months. The underlying rate of inflation eased to 0.5% from 0.6%. Separately, but also disappointingly, the unemployment rate jumped to 7.4% from 7.1% in July.
Fourth, Japanese lifer insurers and pensions funds were reportedly heavy sellers of JGBs today. The poor reception to the five-year bond auction did not help matters. Japanese investors themselves seem to be the featured yen sellers recently, though speculators in the futures market have continued to amass a huge gross short position.
The weekly MOF data showed Japanese investors have stepped up their foreign bond purchases, and last week was the highest in a month. They also bought foreign stocks. While foreign investors bought Japanese bonds and stocks, they did not have to buy yen to do this as the sale of Japanese money market instruments largely funding the purchases. There is much speculation about the government pension funds and their diversification.
The US dollar has made 10 consecutive higher highs against the yen and briefly poked through JPY107. The dollar bulls have met little resistance. They will continue to press their case. Since the greenback is at multi-year highs, it is difficult to find meaningful chart points shy of JPY110.
Outside of US initial jobless claims and Canada’s new house price index, the news stream from North America will be light.
There is much talk (see yesterday’s front page Financial Times report) trying to link the dollar’s rally to changing view of Fed policy. This seems to miss the mark. We recognize that short-term US rates, most impacted by shifting Fed expectations, have risen. However, the move is minor. The June 2015 Eurodollar futures contract implies a 4.5 bp move since the end of August. It seems rather clear to us, the latest leg up in the dollar was spurred by the ECB’s decision last week, the threat of SNB following with a negative rates, and the heightened anxiety over Scotland.
»
- advertisements -
I disagree
Polls schmolls
They won't. Those are empty threats. The rents are astronomical, moving HQs is not something that can happen overnight. Another bank and insurance company will gladly pick up the business that these entities are surely going to see walking away.
Here is the beef finally. This is what this entire spectacle is about for the UK. The English don't care for the North except for the vast amount of offshore resources.
The UK would still lose a good portion of the North Sea oil & gas. The UK cannot afford to lose anything in that space.
Scotland, vote your heart! Vote "yes"!
They will stay with the UK when they get over their euphoria and go cold turkey in the booth. They are too addicted to the fiat forever provided by the London teat. I hope not but I wouldn't bet on hope, I'd bet on human nature, something for nothing, resistance to change, fear of the unknown, scare propaganda from defunct institutions such as the RBC, ad nauseum. If the Scots are smart, they will decouple their ass wagons from the bankrupt RBCs of their world and start over with a new Constitution providing for guillotines for pol-banker cabals that rob the populace.
The currency issue is a bogus one, all currencies in that neck of the woods are all fiat anyway. Besides, Montenegro should serve as a classic study in independence, they do not belong to the EU, nor the UN (yet) but their currency is the Euro. It has worked well for them since independence in 2006, I'm sure they will eventually want their own if they avoid the EU but it shows how easy it is to transition given the will. The big difference is that socialism doesn't run as deep as in the UK. Hey, it's time to wean off the fiat free shit anyway, better now than after total collapse.
Boogers and imaginary hobgoblins are being foisted on the Scots, TPTB know that a spark of dissent for freedom can turn into a Western wildfire in the blink of an eye, or quicker.
Pass the popcorn, please, and turn up the volume, this is getting good.
Japan is facing a wall of debt that can only be addressed by printing more money and debasing their currency. This means paying off their debt with worthless yen where possible and in many cases defaulting on promises made. Japan's public debt, which stands at around 230% of its GDP and is the highest in the industrialized world.
The moment the Japaneses stock market fails to rise enough to offset inflation this will turn into a tsunami of money fleeing Japan and constitute the end of the line for those left holding both JGBs and the yen. This has been a long time coming and I contend the cross-border flow of money leaving Japan is why some stock markets have remained so resilient . When Japan crumbles it will be felt across the world. More on this subject in the article below.
http://brucewilds.blogspot.com/2014/05/japan-sliding-towards-abyss.html
It could be currency traders over did it, the RSI fell through the floor and a bounce was expected. It will be interesting to see how much the pound can bounce before heading south again. I have been watching with wonder as the economic news flowing from the UK has been spun to give the impression of robust growth. How do you explain the pick up in growth to a mature country that has been struggling under debt? In general the UK economy is not particularly competitive, over-weighted in the service sector and global finance it is vulnerable to problems that surface throughout the world.
As usual we must look deeper into the facts to get a clear picture of what is really happening. It now appears much of the recent strength comes from the fact that thousands of Britons are receiving compensation for Payment Protection Insurance (PPI). Most Americans reading about the pickup in Britain's economy never even heard of the PPI. The total paid out so far, £13.3bn or about 22 billion American dollars has been a huge economic boost. More in the article below.
http://brucewilds.blogspot.com/2014/02/uk-economy-flood-of-questions.htm...
Time to free the Slaves !
Default would be GREAT !
China would be happy to come in like they did in Argentina.
David Cameron is NOTHING but a Puppet like Obummer.
The take away is that it only gets 'bitter' from here.
bitter is good ...can't have sweet all the time
bring on Socttish independance and a bitter pill for Westminster to swallow ..then hopefully the English will kick that shithole into the Thames as well