Sterling plunge in the battle for Scotland’s future With only 10 days to go until the Scottish independence referendum, the “Yes” campaign has taken the lead in the latest survey conducted from YouGov, a British opinion research firm for the Sunday Times. The poll carried out between 2 and 5 September showed that 51% of those who have made up their mind planned to back independence, while 49% intended to vote no. Just a month ago, this pollster reported a 22 ppt lead for the no camp, which narrowed to six ppt in their last Sunday poll, and to a 2 ppt shift towards independence at their latest poll. However, the shift in YouGov’s polls contrasts with other figures from another pollster, whose latest results showed a 52-48 majority against independence. As I mentioned before, until recently there was no risk premium for this event at all priced GBP but now investors can no longer ignore the possibility of Scotland declaring independence after the shock poll put the Yes camp in the lead for the first time. The technical picture looks unfavorable as well for GBP, and the pound may decline further as the voting date comes closer. (I wrote about this likelihood back in July; the article is available on the web at https://www.cnbc.com/id/101870529 ).
I believe a "yes" vote would not only be disastrous for GBP but would also be negative for EUR in that it would strengthen the centrifugal forces pushing Europe apart. It would embolden other dissatisfied regions, such as Catalonia in Spain, and might encourage political parties that want their country to leave the Eurozone.
The US employment report released last Friday showed that hiring in August slowed the most this year. Non-farm payrolls increased by only 142k, missing expectations of a 230k increase. Firday’s release ended a six-month streak in which employers hired at least 200k employees. The well-below-consensus print was weaker than the lowest estimate in a Bloomberg survey, surprising the market and pushing the greenback lower across the board. On the positive side, the unemployment rate declined to a six-year low and average hourly earnings accelerated to +0.2% mom from an upwardly revised +0.1% mom, keeping the yoy rate at 2.1%. The pickup in wage growth the past three months, if sustained, would add to questions about how much slack remains in the labor market. Bearing that in mind and the fact that indicators like jobless claims and job openings still point to continued strength, I would expect the dollar regain its momentum. I think that NFP number was a good excuse for profit-taking, given the high USD long positioning that has been building recently, especially against the euro, and that the trend is likely to resume.
At the same time in Canada, the unemployment rate remained unchanged at 7.0% in August from the previous month. The net change in employment however, turned negative again showing a net loss of 11k in August. For the last couple of months the employment figure has been switching from positive to negative and vice versa pushing CAD to the direction of the figure each time.
Today: On Monday we have a very light calendar. During the European day, the only indicators worth mentioning are Germany’s trade and current account surpluses, which are expected to increase in July. In the UK, we get the Halifax house prices for August and the forecast is for a slowdown in pace.
From Canada, we get building permits for July but no forecast is available. We have no major indicators coming out from the US.
We have one speaker scheduled on Monday, ECB Governing Council member Ewald Nowotny speaks.
Rest of the week: As for the rest of the week, on Tuesday, Bank of Japan releases the minutes of its August 7-8 monetary policy meeting. However, these are not the minutes from the most recent meeting but rather from the previous one, when the Board kept policy unchanged and showed confidence that inflation will reach the Bank’s 2% target. Japan’s tertiary industry index is also coming out and the forecast is for a rebound in July. From the UK, we get the industrial production for July and from Canada, we have housing starts for August. On Wednesday, the main event will be the testimony on the August inflation report of Bank of England Governor Mark Carney and other MPC members to the Treasury Committee. From Japan we get machinery orders for July. In France industrial production for July are to be released and from Norway we get the country’s CPI for August. On Thursday, the spotlight will be on the Reserve Bank of New Zealand policy meeting. Last time, the Bank raised its official cash rate by 25 bps, as was generally expected, but said it would pause for “a period of assessment” before interest rates adjust further towards a more-neutral level. Given this, no change in policy is expected. RBNZ Governor Wheeler will hold a press conference after the rate decision. In Australia, the employment figures for August are coming out and the forecast is for the unemployment rate to decline a bit from its highest level since 2002. During the European day, we get CPI data from Germany, France and Sweden, as well as the unemployment rate from the latter. Finally on Friday, the most important indicators we get are UK’s construction output for July and US retail sales for August.