UK & US Economic Update  – 12 September 2014

Scottish referendum dominates both markets and headlines

With a sparsely populated economic data calendar, the Scottish referendum on independence has been the dominant focus of the week for politicians, investors, traders and ordinary citizens everywhere. It is credited with having driven sterling to its lowest levels for 2014 and for depressing equity markets across the developed world.

While not the most sizeable economic area on the bloc, the results announcement following September the 18th’s referendum will be a pivotal moment for all.

If the Scottish people vote to leave the UK then concerns would begin to mount further over the prospect of similar events being repeated across Europe, with both France and Spain having vocal independence movements. On this note, Spanish treasuries closed out their worst week of trading since the summer of 2013 on Friday.

This was while politicians in Europe and the US remained tight lipped with their own opinions in a move which has been seen largely as an attempt not to encourage a “protest” yes vote for independence from those who opposed foreign “interests” in UK affairs.

In addition to concerns of referendum contagion, a Scottish exit from the UK would also be seen as a substantial boost to the campaign for Britain to leave the EU, given that a significant portion of the UK’s left leaning voters are domiciled in Scotland.

While both sides of the independence argument continue to prophesise and hypothesise as to how a split could or couldn’t work, the Bank of England announced this week that it has made preparations in case of a yes vote, so that it can prevent chaos in financial markets.

The measures adopted by the bank are said to involve “significant resources” that would be sufficient enough to deal with any panic that may occur among both investors as well as depositors.

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Going forward

Going forward, particularly for the London markets, we expect that the Scottish referendum and its outcome will continue to dominate both markets and headlines throughout much of the week ahead. However, it will not be the only event.

Scheduled in the calendar for the coming days is the FOMC meeting and consequent press conference, where US policy makers are widely expected to update their forward guidance relating to how quickly rates will need to rise after the first initial increase.

On the other side of the Atlantic, and closer to home; the UK CPI announcement is expected to show inflation declining further from 1.6% during July, to 1.5% for August. In addition to this, the UK unemployment rate is projected to fall further from 6.4%, down to 6.3%.

This is while average earnings figures for August are also expected to yield positive news, with a 0.5% increase for the month of August when compared with the same period one year before.

In addition to economic events and referendums, markets will also contend with the decision from the US and EU governments to implement further sanctions against Russia and the potential for retaliation from Moscow.

FTSE 100

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DOW JONES

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