Scottish Independence Referendum: The Complete Summary

For those just catching up on the main news event of the weekend, namely the sudden surge in Scotland "Yes" vote polling surpassing 50% for the first time, here is a complete round up of the background, updates and expert reactions from RanSquawk, Bloomberg and AFP.


  • Recent polling shows the ‘Yes’ campaign overtaking the unionists for the first time, just 10 days ahead of the final vote on September 18th
  • Independent Scotland runs the risk of limited currency options and fiscal uncertainty
  • UK debt ratings hang in the balance as worst-case scenario sees Westminster shouldering an estimated extra GBP 140bln in former Scottish debt


The “No” party – the unionists - are led by Alistair Darling, former Chancellor of the Exchequer, previously held a lead over the nationalists but this has reversed in the most recent polling, with the ‘No’ vote holding 49%.

The “Yes” party – the nationalists - are led by Alex Salmond, Scotland’s First Minister, and harbour hopes of swinging the referendum in their favour as latest polls suggest they have been overtaken the ‘No’ camp by 2ppts.

Serious doubts remain over the future of Scotland’s currency if the nationalists win. Salmond has repeatedly stated his intention of keeping the GBP, but all 3 main UK parties have made clear they would not be willing to share their currency and central bank with a foreign state. Also, a potential use of the GBP without a currency union would not be compatible with EU membership, as the EC requires member states to have a monetary authority of their own.


No” Victory – Given the somewhat complacent attitude market participants have had towards the vote indicates that the upside in riskier assets is limited in case the unionists win the referendum with a large majority. Nevertheless, expect to see some tightening in spreads of the shorter-dated implied volatilities which have widened heading into the risk event.

However, a close vote could lead to a second referendum in 5-10 years and as such, changes to UK regional governance would take place as a result of more devolution, with additional powers going to Scotland such as more autonomy over taxation. In turn, business leaders, including the head of Standard Life and RBS, will have to decide as to whether to relocate their headquarters to the UK or stay in Scotland depending on what type of policies Scotland decides to pursue with its additional powers.

Yes” Victory – Great uncertainty revolves around an independent Scotland, specifically due to the lack of clarity over the potential new fiscal arrangements such as interest rates, taxation, investor protection, financial stability and monetary policy.


There is a considerable downside asymmetry between potential gains from a resounding victory for the “No” party and a close vote or surprise victory for the “Yes” party. If polls continue to suggest a narrowing of the unionists’ lead, markets should become more sensitive. GBP should weaken in the run-up to the vote and fall sharply if Scotland vote for independence. More specifically, analysts at Societe Generale expect that on the actual date of the referendum, a Scottish “Yes” vote would trigger an immediate fall in GBP, between 3 – 5%.

The question of whether a go-it-alone Scotland will be able to keep the GBP in partnership with the remaining parts of the U.K. has dominated the independence debate with all the major parties in London saying they would oppose it. Scottish First Minister Alex Salmond has argued they would change their view once negotiations began after a Yes vote and has said Scotland would refuse to pay its share of the U.K. national debt (some see this as high as GBP 140bln) if they didn’t give in.


Scottish equities should suffer, with the effect on UK stocks expected to be mixed. Analysts at Barclays believe a “Yes” vote would have a minor negative impact on the UK stock market. However, they say independence would pose significant difficulties to both economies and hit several London-listed companies such as BG Group, RBS, Lloyds, Diageo and BAE Systems. The adverse impact would come through considerable uncertainty over the scale of potential currency fluctuations, the increased risk premium associated with a new, independent currency, and the limited belief in a Scottish central bank’s ability to act as a lender of last resort. Conversely, airline stocks such as easyJet, Ryanair and IAG should benefit as the “Yes” party have already committed to slashing Passenger Duty and possibly eliminating it altogether.

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Media take, via AFP:

Supporters of the United Kingdom began a fightback on Monday to stop Scotland voting for independence in next week's referendum after an opinion poll put the separatists ahead for the first time. The shock survey put the "Yes" campaign two points ahead after months of a strong lead by unionists, causing the pound to slump to a 10-month low on fears that a break-up of the 300-year-old union was now a real possibility.


The leader of the Better Together campaign, Alistair Darling, insisted that other polls put the unionist campaign ahead but admitted it was "clearly very tight" ahead of the September 18 vote.


"We're in the position now where every voter in Scotland could potentially tip the balance in this referendum. But I am confident that we will win," the former finance minister told BBC radio.


'Ten days to save UK'


This weekend's poll has shaken up a campaign that until just a few weeks ago looked almost certain to end in defeat for the independence campaign. The YouGov poll in The Sunday Times newspaper gave the "Yes" camp 51 percent support compared to the "No" camp's 49 percent, excluding undecided voters. Six percent said they had not made up their minds. The two-point gap is still within the margin of error but Peter Kellner, the president of the YouGov pollsters which carried out the survey, said it was a major development.


"The 'Yes' campaign has not just invaded 'No' territory; it has launched a blitzkrieg," he wrote in a blog posting.


The poll finding was front-page news on British newspapers on Monday, with many running the same headline: "Ten days to save the union."


Queen 'horrified' by break-up


The poll has increased the pressure on British Prime Minister David Cameron, who agreed to a referendum but has been accused of failing to fight hard enough to keep Scotland in the UK.


Media reports suggest that some lawmakers in his Conservative party are discussing whether to call a vote of no confidence in the premier in the event of a "Yes" vote.


However, Cameron has insisted he has no intention of resigning and will lead the Tories into the next British general election in May next year.


Cameron spent the weekend with Queen Elizabeth II at her Scottish summer retreat in Balmoral, where the referendum is likely to have been a topic of discussion.


Officially the monarch has remained neutral, although some newspapers quoted royal sources as saying she is "horrified" at the prospect of a break-up of the UK.

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Market Reaction

  • Sterling drops most in 14 months vs USD to hit 1.6103, lowest since Nov. 2013
  • European traders say no strong bids seen until 1.6000
  • GBP/USD 1-mo volatility jumps most since Oct. 2008 to 13-mo high
  • U.K. money markets pricing delay to BOE rate hike; with first full 25bps of tightening priced in July 2015 vs April 2015 on Friday
  • Spike in GBP front-end rates stop out of short positions
  • RBS and Lloyds shares extend decline; Z-spreads widen; both banks lend most to Scotland


  • Sept. 8 - U.K. Govt Not Making Contingency Plan for Scottish Independence
  • Sept. 8 - Former Chancellor Darling says confident ‘No’ campaign will win at Scots referendum
  • Sept. 7 - Queen Elizabeth has “great deal of concern” about possible Scottish independence, Sunday Times reports
  • Sept. 7 - U.K. Chancellor Osborne says says “there will not be a currency union”
  • U.K. has action plan to give more power to Scotland
  • Sept. 6 - Coalition policies help scots independence campaign, Brown Says
  • Sept. 6 - Scottish independence backed by 51% in YouGov poll, Sunday Times reports
  • Sept. 6 - A Panelbase poll shows the independence campaign still need to overcome a four-point deficit to triumph
  • Sept. 6 - Cameron warns Scotland will be more vulnerable to terrorist attacks if it votes for independence
  • Aug. 13 - BOE Governor Carney says Scottish independence could cause financial stability issues and BOE has contingency plans in place to address them during any potential transition

BBG Traders' Notes from Richard Breslow

  • For all the huge movement in cable overnight, ranges elsewhere surprisingly small, if you read the headlines on flight to safety, haven buying, bonds up, not huge, stocks down, not huge; apart from the obvious pain points in currencies
  • EUR/GBP 0.7900 we pointed out last Thursday as a huge chart level which we have now gapped well above, that’s become the big kahuna to trade against, I don’t think anyone knows what to do with this, what the polls really mean at the end; will certainly remain on top of market attention list over next 10 days or so

Research Roundup:

JPMorgan (fx strategists incl. John Normand)

  • Between more ECB easing, tightening of Scottish referendum polls and rise in U.S. 2-yr rates, FX turnover spiked from depressed to almost normal level
  • Trades remain highly tactical; take profits on long USD vs JPY, GBP and SEK; stay short EUR/USD and add limited euro-funded carry (EUR/BRL) and sell GBP/AUD
  • GBP isn’t bearish at least vs EUR if Scotland votes no; prefer short on crosses like EUR and add to shorts vs AUD as polls on Scotland referendum tighten; bearish 1.63  GBP/USD one-touch triggered

Credit Suisse (strategists incl. Ric Deverell)

  • EUR/USD downside likely limited near term in absence of more  clarity on potential for broad-based QE from ECB; 3-mo forecast at 1.29
  • Continued improvement in U.S. data and increasingly dovish ECB to drive bullish stance on USD
  • Prefer shorting EUR/EM crosses such as EUR/ZAR, EUR/TRY, EUR/BRL and EUR/MXN
  • Among U.K. data this week, expect July industrial production to grow 0.1% m/m vs 0.3% m/m in June, below consensus of 0.2%
  • GBP may continue to come under pressure in near term; EUR/GBP to be biased lower

Citigroup (strategists incl. Steven Englander)

  • Advanced retail sales most important U.S. data this wk; a strong print will continue to weigh on bonds
  • NFIB small business survey potentially important; continued increases in 3-mo forward hiring trends will reinforce fears of inflation and higher U.S. rates
  • Small risk from Fed speakers Plosser and Tarullo
  • GBP may be supported if U.K. July industrial/manufacturing production shows economic activity expansion at start of 3Q even as concerns about Scottish referendum may weigh
  • BOJ’s Kuroda not expected to give hints of additional easing
  • Disappointment in Machinery orders would probably make markets factor the possibility of further BOJ action
  • Australian employment report could prove a major factor in setting the tone for AUD; bigger shock would be on the strength
  • Like short EUR/AUD into the release

Morgan Stanley (team incl. Hans Redeker)

  • GBP/USD may fall to 1.46 in 12 months if event of Yes vote at Scottish referendum; cuts GBP/USD end-4Q forecast to 1.65 vs 1.73 prev, citing moderation in BOE rate hike expectations and cooling off in pace of U.K. recovery
  • As monetary conditions normalize, traditional relationships between currencies and oil prices could return; may pressure NOK, COP, RUB and CAD
  • NOK decline looks set to accelerate as economic support from high oil prices and oil sector investment falters
  • Add AUD/NZD longs; weakening fundamentals, both domestically and internationally, now appear to work against the NZD; short vs AUD to reduce carry costs in current environment
  • Dovish ECB policy does little to support EMFX; U.S. funding costs being of greater importance to the asset class
  • Some exception found in EUR/CEE, though Russia/Ukraine tensions may weigh on CEE performance
  • Await rebound in EUR/USD to re-enter bearish strategies given likely near-term constraints from extreme short positioning; forecast 1.20 in 2015

BNP Paribas (Michael Sneyd)

  • Data and yields to continue supporting a strong USD
  • Remain long USD/JPY from 103.20, with stop trailed to 104
  • Enter short AUD/USD at 0.9345, target 0.9050, stop at 0.9510; AUD strength vulnerable from both extended positioning and relative fundamentals
  • Norwegian CPI, quarterly regional network report have scope to support NOK ahead of Sept. 18 Norges Bank meeting; elevated long NOK positioning is a limiting factor

What To Watch

  • Sterling may drop further ahead of Sept. 18 Scottish referendum, analysts say; see research roundup
  • Market Should Price 50% Chance Scotland Says Yes: Deutsche Bank
  • CEBR says an independent Scotland would begin with a budget deficit of at least 6.4% to GDP
  • Scotland independence may halt work on renewable power projects that support GBP14b of investment and 12,000 jobs
  • BOE Governor Carney due to speak at trade union congress in Liverpool tomorrow and will testify on Inflation Report the day after

Source: RanSquawk, Bloomberg, AFP