Markets in Europe look set to make back a little of the lost ground from yesterday as Chinese data comes in line with forecasts and the latest poll on the Scottish vote suggests a 4 point lead for the “No” campaign ahead of an expected rise in euro-zone industrial production and a meeting of finance ministers in Milan.
Businesses are clearly and understandably rattled by the prospect of a breakup of the UK so it will be of some relief that YouGov’s latest survey for The Times and Sun has switched back in favour of “No” on 52% but it’s still very tight and doesn’t leave much room for complacency.
There isn’t much precedent for a referendum of this scale so it’s hard to know how exactly markets will react. The initial reaction to a “Yes” vote would almost have to be FTSE 100 and British pound negative.
On September 18 polling will be happening from 7am-10pm BST after which declarations from local results should start to see some gyrations in the British pound which trades 24 hours/ day. By the opening of the UK stock market on September 19 there may have been the declaration of the national vote or likely a good proportion of local declarations which would probably set up for a large opening gap.
The largest volatility should obviously be expected from a “Yes” vote to independence which would be a change from the status quo and could see some dramatic market moves, it’s entirely possible GBP/USD could just drop 1200 pips to 1.50 or the FTSE 100 collapse 800 points to 6,000.
In today’s data; Italy’s industrial production for July is expected to drop to -0.2% after a 0.9% rise in June; that would likely put the annual figure down to 0.1% from 0.4% previously.
Overall for the euro-zone industrial production for July could be looking a little healthier with an estimated rise of 0.7% over the -0.3% drop seen in June upping the year-over-year figure to 1.4% growth.
J.D. Wetherspoon (LONDON:JDW) releases earnings this morning.
EURUSD – Yesterday the euro formed another tight-ranged spinning top. After its post-ECB plunge, the euro has traded back and forth around 1.29 to the US dollar. The currency is hugely oversold but could remain so while trending downwards. A re-test of the psychological al 1.30 seems likely before another move perhaps targeting 1.2750, the lows from April and July 2013.
GBPUSD – The pound has filled Monday’s gap but lost momentum after the fill having touched the 38.2% retracement of the longer term rally since July 2013. 1.60 is the big psychological level which coincides with the 61.8% retracement of the rally since July 2013 and a move below there could spell a new era of weakness for sterling.
EURGBP – Like cable, the euro sterling cross covered Monday’s gap, this time on the downside but has since recovered slightly from a level that coincides with the July 18/24 highs. The gap-fill suggests we may see another test of the low at 0.7890.
USDJPY – Dollar yen has sailed through 107 having gained close to 250 pips in 5 trading days. 107.50 is a potential sticking point from rising trendline connecting the May and Dec 2013 highs while the recently broken multi-year high at 105.45 could act as support.
Equity market calls
- FTSE 100 is expected to open 11 points higher at 6,810
- DAX is expected to open 4 points higher at 9,695
- CAC 40 is expected to open 1 point higher at 4,441
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