Graeme Wearden 

Pound and bank shares rally ahead of Scottish referendum result – business live

Rolling business and financial news, as sterling hits a two-year high against the euro and Scottish-based banks gain ground too
  
  

City of London
The City of London, with one eye on the Fed and the other on Scotland Photograph: Dan Kitwood/Getty Images

Closing summary.

It’s now just a matter of waiting for the Scottish results, early tomorrow morning.

Here’s a recap.

Shares in Scottish-based banks have risen tonight, on anticipation that Scotland will not vote for independence.

The pound has also rallied, hitting a two-year high against the euro and a two-week high against the US dollar.

But with the cost of insuring against sterling volatility soaring, the next 24 hours could be dramatic.

David Rodriguez, Quantitative Strategist at DailyFX, summed up the mood:

The Scottish referendum is well-underway, and markets are on edge as the final decision will almost certainly cause major volatility not only in UK financial markets but across the globe. ...

There are concerns that the UK’s factory recovery is slowing, after manufacturers suffered a big drop in exports last month.

The Dow Jones industrial average has hit a new record high.... after the weekly US unemployment data was stronger than forecast.

But analysts have predicted more pain for the gold price after it hit its lowest level since January this morning. Silver hit a 14-month low too, on a bad day for precious metals.

UK retail sales have been bolstered by panic buying of powerful vacuum cleaners. It’s all the Daily Mail’s fault.

There is relief in Ireland after its GDP surged in the last quarter. Finance minister Michael Noonan claimed a “strong and sustained” recovery is underway.

But the ECB’s first offer of cheap loans to commercial banks has flopped.

And the French government has denied that Moody’s has tipped it off about a credit rating downgrade tomorrow.

In the meantime, keep watching out Scottish referendum liveblog:

Scottish independence: voters turn out for Scotland’s historic referendum - live

I’ll be back in the morning, probably rather earlier than usual. See you then. GW

Scottish bank shares rise ahead of referendum result

Shares in three well-known Scottish financial institutions all gained ground today, mirroring the pound’s rally against the euro and the dollar (details here)

Royal Bank of Scotland shares closed 0.65% higher, Lloyds Banking Group gained 1.3%, and Aberdeen Asset Management rose by 1.85%.

David Madden of IG says this underlines that City investors are anticipating that Scots will not chose independence:

Alex Salmond’s moment in the sun has finally come. The Scottish are voting on the future of their country as we speak, but seeing as stocks with large exposure to Scotland are rallying it would suggest the support for the ‘Yes’ campaign is fading.

Our binary bet on the outcome of the Scottish referendum is now showing an 18% chance of a ‘Yes’ vote. Traders were given a shock by the YouGov poll that put the ‘Yes’ campaign ahead nearly two weeks ago, but the sentiment has shifted to the ‘No’ side and traders have used the Salmond shake up as an opportunity to pick up cheap banking stocks.

That’s it. Europe’s markets are closed for the night, with the main indices all up.

  • EUROPE’S FTSEUROFIRST PROVISIONALLY CLOSES 0.9 PCT HIGHER AT 1,396.99 POINTS
  • BRITAIN’S FTSE 100 RISES 0.5%, GERMANY’S DAX UP 1.3%, FRANCE’S CAC 40 GAINS 0.6%
  • SPAIN’S IBEX UP 1.1%, ITALY’S FTSE MIB UP 0.1%

Updated

The Scottish vote will mean late finishes, early starts, and full-blown all-nighters being pulled in the City (as well as in newsrooms, homes and even some pubs).

The FT has published a nice piece. Here’s a flavour:

BNP Paribas will have traders and FX sales people at their desks from 2am so that London-based clients can trade through their usual contacts. At Rabobank, systems engineers will be in overnight to prevent any problems from high trading volumes, while FX futures traders will be in from 4am and spot traders from 6am.

Investors in other asset classes - where trading any sizeable volume will only be possible once London markets open - are less likely to keep vigil.

“There is no point in staying overnight as you will only get the news early in the morning anyway. There is some uncertainty about the outcome but the market has so far been very orderly,” said a senior fixed income banker at a large investment bank.

Traders man 24-hour currency desks as Scotland goes to the polls

Like the pound, shares in London are also up this afternoon as London investors anticipate a No victory in Scotland.

The FTSE is up 35 points, or 0.5%, at 6815, and many stocks with exposure to Scotland are higher today.

This relaxed attitude could backfire if the Yes campaign triumph, points out Jasper Lawler of CMC Markets:

There seems to be a good amount of complacency in markets on the referendum result which could feed into a more exaggerated response if there is a ‘Yes’ vote and perhaps a more muted one should it be a “No”.

Pound rallies ahead of Scottish referendum result.

Sterling has been rallying this afternoon, and has hit a two-year high against the euro ahead of the result of the Scottish referendum.

It is currently trading at €1.291, up almost half a eurocent.

The pound has also gained more than one cent against the US dollar to hit the $1.64 mark for the first time in a fortnight.

The rally suggests traders are anticipating that the No campaign will win today’s vote, with the result due early tomorrow morning.

As Ian Gunner, portfolio manager at Altana Hard Currency Fund, put it to Reuters:

“It seems people are growing reasonably confident of a ‘No’ vote in Scotland,”

David Rodriguez, Quantitative Strategist at DailyFX, comments:

“The Scottish referendum is well-underway, and markets are on edge as the final decision will almost certainly cause major volatility not only in UK financial markets but across the globe. Traders have perhaps surprisingly sent the British Pound to fresh multi-year highs versus the Euro and multi-week highs versus the US Dollar.

Yet the lack of actual vote results and a ban on exit polls tells us this is largely a technical correction; many traders have closed GBP-short positions in a hurry on what promises to be big volatility as results come in.

Rodriguez adds that it will be a “major upset” if Scottish voters choose independence.

Greek cleaners take case to Strasbourg

Over to Greece where government cleaners who were sacked a year ago today have stepped up their campaign by taking their fight to the heart of European politics in Strasbourg.

Our correspondent Helena Smith reports from Athens:

For the women who have become the emblem of austerity in the country that spurred the euro zone crisis, there is it seems no end in sight to a battle that marks its first anniversary today. Instead of relenting, the protestors - part of a group of 595 cleaners fired from jobs at the finance ministry by a government determined to prune the public sector - have not only hunkered down, establishing a tent city outside the economy ministry but expanded their campaign abroad.

This week, as the guests of the European Left, they addressed unionists and members of the European parliament in Strasbourg. “What happened to us was totally arbitrary, totally unfair and people outside Greece have to know,” said Fotini Nikitara, who elected to stay behind in Athens as part of a small team protecting the protest camp.

“For the past year we have been on the streets, for the past 135 days we have been here, outside the economy ministry, and because the European parliament was debating the budget this week we thought the time had come to send a small group of around 30 there to explain our cause.”

The cleaners argue that far from trimming the national budget their sackings have provided negligible relief for a country that though ravaged by debt and corruption has since outsourced their work to private cleaning companies.

Instead, they say they were simply “soft targets” who should be rehired. “Next week on the 23rd [September] we expect Supreme Court to vindicate us,” said 45-year-old Nikitara.

“That one judge has recommended that we not be reinstated doesn’t bother us. There are four other judges whose opinion counts and they haven’t spoken yet.”

Last week, Supreme Court Judge Christoforos Kosmidis signaled that he would oppose the cleaners’ fight to be rehired, saying their sackings had been in the national interest and an unavoidable part of deficit-reducing measures. The court, the highest in the land, has been examining an appeal brought by the finance ministry after a lower tribunal instructed the government to rehire the cleaners earlier this year. The finance ministry argued that the Court of First Instance did not have the authority to judge such matters.

Nikitara adds:

“The trip to Strasbourg was very successful. If we lose the battle next week we will call a council and plan our next moves. The fight will not be over,”

Irish finance minister hails growth surge

Michael Noonan, Ireland’s Finance Minister, is talking up the Republic’s strongest growth rates since the first decade of this century (as covered earlier), Henry McDonald reports.

Noonan says:

“This is the strongest growth rate recorded since the early 2000’s and shows that the strong and stable recovery in the Irish economy is well under way and is starting to be felt across all sectors of the economy. Most encouragingly the figures are showing the domestic economy growing with consumer spending up 1.8% year on year.

“The turnaround that we are seeing in the Irish economy is a direct consequence of the policies pursued by this Government and the sacrifices made by the Irish people. Consolidation of close to 20% of GDP has been introduced along with major structural reforms designed to boost the competitiveness of the Irish economy. The specific measures introduced over the past three years to repair and grow key sectors of our Economy have also made a significant contribution.”

Whether this means Noonan and the Fine Gael-Labour coalition can be more flexible regarding the 2015 budget next month remains to be seen, Henry adds.

Labour’s new leader Joan Burton is seeking some pressure taken off austerity cuts and some extra public spending. Fine Gael and Noonan in particular are more inclined to keep the Irish “patient” on the austerity-pills a little longer in order to secure international market confidence in the Republic as it moves to one year since the country exited the IMF-EU bail out programme.

Dow Jones hits another record high

Update. The Dow just hit an all-time intraday high of 17241, up 85 points today.

Wall Street is open, and share are pushing higher in early trading.

The Dow Jones industrial average is up 52 points, or 0.3%, at 17209. And the S&P 500 is close to its alltime high.

The strong US jobs data is cheering US traders, as is the Fed’s pledge to keep rates low for a “considerable time” after ending its QE programme (although they may rise faster once the hiking begins).

Updated

Just in. South Africa’s central bank has left interest rates unchanged, and cut its 2014 growth forecast to just 1.5%, from 1.7% two months ago.

Awkward.

Stephen’s actual book is “When the Money Runs Out: The End of Western Affluence” -- arguably more scary than his namesake’s prose.

Updated

The surprise slide in UK factory orders last month suggests the British economy may be slowing, suggests economics editor Larry Elliott:

Orders for Britain’s factories dried up as the slowdown in the eurozone and tension between Russia and the Ukraine led to a harsher climate for exporters.

The monthly snapshot from the Confederation of British Industry found that firms were reporting a big drop in demand from overseas – falling to its lowest level since the start of 2013.

Although firms said they had no immediate plans to cut back on output, the downbeat industrial trends survey from the UK’s leading employers’ organisation added to recent evidence that the economy will struggle to maintain the high growth rates seen in recent quarters.

Full story: UK exports fall amid crises in eurozone and Ukraine

The number of Americans who have claimed jobless benefit for more than a week has now hit its lowest level since the dawn of the credit crunch.

At 2.429 million, the US ‘continued claim’ total is the lowest since May 2007.

The big drop in new US unemployment claims shows that the Federal Reserve should have started to end its ultra-loose monetary policy already, suggests Nordea market’s chief US analyst Johnny Bo Jakobsen.

US jobless data beats forecasts

Strong US jobs data just hit the wires, giving the dollar another lift.

The number of Americans signing on for unemployment benefit for the first time fell by a chunky 36,000 last week, to 280,000.

And the number of people filing repeat claims (the continued claims figure) has dropped to 2.429m.

This has pushed the dollar higher, to a new six-year high against the yen. The interest rate, or yield, on US Treasury bills has also risen.

That shows investors are concluding that this strong data is bullish for the US economy, and more likely to encourage interest rate rises next year.

Silver hits 14-month low

Back in the markets, the gold price remains under pressure at $1,217 per ounce, close to the eight-month low hit earlier this morning (see details earlier in the blog).

The silver price is also being hit, and has now fallen to its lowest level since July 2013.

Precious metals are being hit as investors anticipate US interest rates rising more quickly than expected next year.

Mitsubishi Corp analyst Jonathan Butler explains:

“The fact that rates are going to have to rise fairly quickly in the second half, assuming that the Fed will keep them on hold probably until the middle part of next year, implies further weakness in gold for the long term.”

Here’s a great explanation of why the European Central Bank’s offer of low-cost loans to eurozone banks flopped this morning:

Today’s GDP data proves that the Irish economy is “recovering really rapidly,” said Conall Mac Coille, chief economist at Davy Stockbrokers.

”Every part of the economy - the export sector, construction, consumer spending - it’s all picking up together and that’s giving you these really strong growth rates.”

Irish GDP surges by 1.5%

Ireland’s impressive recovery from its financial crisis has continued, with growth surging in the last quarter.

The Central Statistics Office has reported that GDP rose by 1.5% in the second quarter of 2014, defying the stagnation in the wider eurozone. That means it has grown by a stonking 7.7% over the last year.

GNP, which strips out multinational companies based in Ireland, rose by 0.6% in the quarter.

The CSO reports that Irish industry grew by 4.7% in the quarter, while distribution, transport, software and communication increased by 2.9%.

Other Services shrank by 0.8% and public administration and defence decreased by 0.5%.

On the expenditure side, capital investment increased by 9.1%, while net exports rose by 7.2%, government expenditure increased by 3.8% and personal expenditure increased by 0.3%.

The CBI survey shows that Britain’s manufacturing sector is losing momentum after a strong few months, reckons Howard Archer of IHS Global Insight.

He agrees that geopolitics is probably hurting factories:

It may well be that the increased uncertainty resulting from current heightened geopolitical tensions particularly related to Russia/Ukraine are causing some big-ticket manufacturing orders to be delayed or even cancelled.

In addition, weak Eurozone activity is clearly having a limiting impact on foreign demand for UK manufacturing goods, while the strength of the pound has not helped UK manufacturing exports.

Here’s the full ‘key findings’ from the CBI’s industrial trends survey, including the worrying drop in export orders.

  • 34% of firms saw the volume of output rise in the last three months, and 19% said it fell, giving a balance of +15%
  • Expectations are for stronger growth next month with 36% predicting a rise in the volume of output and 9% a decline. That gives a balance of +27%
  • 14% of firms said their export order books were above normal and 38% said they were below normal, giving a balance of -24%, against a long-run average of -20%
  • Output price inflation expectations remained muted: 8% of firms expect output prices to rise over the next three months and 7% expect them to fall, giving a balance of +1%
  • 16% of firms said their present stocks of finished goods were more than adequate, and 6% reported they were less than adequate, giving a rounded balance of +9%.

By “acute political uncertainty at home and abroad”, the CBI is presumably citing Scotland’s future and the Ukraine crisis; other geopolitical issues such as the Middle East could also have hurt confidence.

UK exports slide as factories hit by political uncertainty

Britain’s factory sector has suffered a nasty setback, according to CBI’s latest survey of industrial trends.

Firms reported that total order books have fallen below “normal” levels, and export order books worsened significantly, and are now at their weakest since January 2013.

Just 14% of firms said their export order books were above normal and 38% said they were below normal. That give a ‘balance’ of -24%, which is a 21-month low.

The total order balance also fell, to -4 from +11.

Katja Hall, CBI Deputy Director-General, said:

“Against a backdrop of acute political uncertainty at home and abroad, exports orders for UK manufacturers are faltering, which is disappointing.

“However, it’s encouraging that output growth has remained solid and firms expect production to rise strongly in the next quarter.”

Updated

Intéressant... the French government is denying that Moody’s has given it advance warning of a downgrade tomorrow....

A Moody’s downgrade would be another blow to president Francois Hollande:

Rumours that France has been downgraded by Moody's

There are reports in the French media that rating agency Moody’s has downgraded France’s credit rating.

According to L’Opinion, Moody’s has told the Paris government that it is lowering the rating by one notch, from Aa1 to Aa2.

Moody’s is scheduled to issue a new rating decision on France on Friday (and the UK, as it happens), and typically an agency will give a government 24 hours notice.

Moody’s a informé ce matin le gouvernement de la dégradation de la France

There’s no instant reaction in the markets; maybe it was ‘priced in’.

TLTRO results: what the analysts say

Reaction to the results of the European Central Bank’s TLTRO operation is flooding in.

Nordea analyst Aurelija Augulyte reckons it won’t force the ECB into yet more stimulus measures:

And Marc Ostwald of ADM Investor Services suggests banks were reluctant to take part until the stress tests of the eurozone banking sector is compete this autumn

Eurozone banks take up €82.6bn from ECB's TLTRO

Oh dear. The European Central Bank has only lent around €82.6bn to eurozone banks in its new TLTRO lending operation.

That’s rather less than experts had predicted, and suggests that the TLTRO programme will only have a limited impact on boosting credit availability in the euro area, stimulating growth and fighting deflation.

The ECB is offering up to €400bn of cheap liquidity through the TLTRO programme; banks have a second chance to bid in December.

Heads-up. The European Central Bank is due to announce any moment how much money it has lent to eurozone banks in new, low-cost four-year loans to encourage them to offer credit to small businesses.

UK food costs fall

Today’s retail sales figures also show that the cost of food in the shops fell last month, for the first time in a decade.

The ONS reports that average store prices fell in August 2014 by 1.2% compared with August 2013, the largest fall since July 2009.

The slowing of prices at petrol stations, down 5.0%, provided the main contribution to this fall. It is worth noting that prices at food stores fell by 0.1%, the first annual fall in prices at these stores since December 2004 when it also fell by 0.1%.

Greece’s jobless rate has fallen, but remains painfully high with more than one in four people out of work:

Retailers also reported that sales of flat pack furniture were stronger than usual in August.

And here’s the chart showing how sales volumes surged by 3.9% year-on-year, driven by furniture and electrical goods.

Confirmation that spending on non-food items such as hoovers pushed up retail spending.

The ONS confirm that Britain turned into a nation of vacuum-cleaner shoppers last month:

Electrical appliance stores contributed to the increase in the quantity bought in household goods stores.

Feedback from retailers suggested that sales were increased as consumers sought to buy high powered vacuum cleaners before the EU energy saving regulation came into force at the end of August.

Updated

Vacuum cleaner demand helps retailers clean up in August

UK retail sales grew faster than expected last month, and panic buying of vacuum cleaners is partly responsible.

Sales volumes grew by 0.4% in August, and were 3.9% higher than a year ago, according to new data from the Office for National Statistics.

And the prospect of the European Union outlawing high-powered vacuum cleaners sent Britons racing to the shops to buy a power-guzzling model. That drove household good sales up by 12.7% year-on-year.

I suspect the Daily Mail should get the ‘credit’ for this one.

Most European stock markets have gained ground this morning, with the German DAX up 0.8% and the French CAC up 0.5%.

The FTSE 100 is lagging, though, up just 12 points or 0.2%. The Scottish referendum may be weighing on the City.

Back on the gold price, and this chart shows how bullion has lost 9% of its value since early July, and 12% since March.

The decline came as investors brace for the US Federal Reserve to end its quantitative-easing bond-buying spree, and then raise interest rates next year.

Updated

Cost of insuring against sterling volatility jumps

In the City, traders are dashing to protect themselves from being burned by the Scottish independence referendum which began two hours ago.

The cost of buying overnight protection against sterling volatility has soared this morning, according to Reuters data:

The overnight sterling/dollar implied volatility rose to a high of 34.75 percent, almost 10 times levels seen a month ago, having closed on Wednesday at around 12.75 percent.

The overnight options will expire on Friday, when results for the Scotland vote will be announced.

Our live blog covering the whole Scottish referendum is here:

Scottish independence: referendum polling day - live

And there are hordes of colleagues north of the border:

SNB: Economic outlook has deteriorated considerably

Switzerland’s central bank has declared that it will “immediately” take action to prevent the Swiss franc appreciating any higher.

The SNB voted to leave interest rates unchanged at 0.0%, but also warned that economic conditions have worsened.

In a statement, it said:

The economic outlook has deteriorated considerably. The Swiss franc is still high. With the three-month Libor close to zero, the minimum exchange rate remains the key instrument to avoid an undesirable tightening of monetary conditions. The SNB will therefore continue to enforce the minimum exchange rate with utmost determination.

For this purpose, it is prepared to purchase foreign currency in unlimited quantities. If necessary, it will take further measures immediately.

There has been speculation that the SNB would impose negative interest rates to weaken the franc, but that remains in the ‘toolbox”.

Overnight, the International Monetary Fund has warned that the global recovery is precarious.

It told G20 finance minister and bank chiefs that “excessive risk taking and geopolitical hazards” pose new threats to the global economy, and cut its growth forecasts for this year.

Full story: IMF warns of new threats to global economy due to excessive risk taking

Bloomberg also reports that the gold price was hit by the Fed’s forecast that rates will rise more rapidly in 2015 and 2016 (even if there’s a “considerable” pause before the first hike)

“Higher rates are becoming a reality,” Chris Gaffney, the senior market strategist at EverBank Wealth Management in St. Louis, said in a telephone interview. “The sentiment is turning very very bearish.”

Gold price lowest since January after Fed statement

Here’s Reuters take on the falling gold price:

Gold tumbled to its lowest in 8-1/2 months on Thursday as the dollar index jumped to a four-year peak after the Federal Reserve signalled that a faster hike in U.S. interest rates might be on the horizon.

The Fed on Wednesday renewed its pledge to keep interest rates near zero for a “considerable time”, but also indicated it could raise borrowing costs faster than expected when it starts moving.

“The shift higher in the anticipated Fed funds rate for the end of 2015 and 2016 could further weigh on gold prices longer term and act as a headwind to future rallies,” HSBC analysts said in a note.

”If the dollar remains firm, gold should stay on the defensive,” they said.

Spot gold fell to $1,216.01 an ounce early on Thursday, its lowest since Jan. 2, before paring losses to trade flat at $1,224 by 0624 GMT.

The metal lost nearly 1 percent the day before. U.S. gold futures slid 1 percent to $1,224.70.

”Technically gold looks vulnerable, with the psychological $1,200 and the critical $1,180 now a real possibility of being tested in the coming days or weeks,” said MKS Group dealer Jason Cerisola.

Opening post: Digesting the Fed

Good morning, and welcome to our rolling coverage of the financial markets, the world economy, business and finance.

The US dollar is rallying this morning after the Federal Reserve signalled last night that US interest rates will rise faster than expected, once the hiking begins.

At last night’s meeting, policymakers revealed that they now expect to raise rates at a quicker pace than back in June. And that is sending traders piling into the US dollar, even though the Fed didn’t drop its promise to maintain record-low rates for a “considerable period” first.

This dot chart shows the current predictions for US rates among members of the FOMC. The clusters in 2015 and 2016 are higher than in June.

And the rising dollar send the gold price down to just $1,216 per ounce, its lowest level since January.

Mike van Dulken, Head of Research at Accendo Markets, says:

In commodities, Gold has taken another dive to $1217/oz, its lowest since January, after the US Fed increased its interest rate projections, spurring USD gains which made the safehaven more expensive.

The oil price is weakening too; Brent crude is down 50 cents at $98.44 per barrel.

But Janet Yellen did also strike a dovish tone last night, saying neither household spending nor the employment market were strong enough.

As my colleague Heidi Moore reported:

“The labor market is still struggling to recover,” Yellen said to reporters on Wednesday. “There are too many people who want jobs but cannot find them … too many people who are not searching for a job but would be if the labor market were stronger.”

Fed in no hurry to raise interest rates as it details ‘gradual’ plans to exit stimulus

What else is afoot today?...

In Europe, the ECB will announce the first allocation of funds under its new TLTRO programme; an offer of cheap money to banks who pledge to lend it on to the “real economy”. The allocation details are released at 10:15am BST.

The Swiss central bank is meeting this morning, and releasing its decision on monetary policy shortly.

And we’ll get another healthcheck on the UK high street, with the latest retail sales figures released at 9.30am BST.

There could be a shareholder rebellion at Diageo’s annual meeting this afternoon, over the company’s large pay packages. That starts at 2.30pm.

And in the eurozone, we’ll be watching Greece as Athens prepares for a meeting between PM Antonis Samaras and German chancellor Angela Merkel next week.

Finance minister Gikas Hardouvelis has upped the ante, suggesting in a newspaper article today that Greece would be better off borrowing from the markets than the International Monetary Fund.

The Kathimerini newspaper explains:

The message that Hardouvelis is sending to Germany and Greece’s other creditors in an interview to be published on Thursday in German newspaper Handelsblatt is that the country is able to refinance its requirements by itself.

Just a few days before a meeting between the Greek and German heads of government, Antonis Samaras and Angela Merkel, Hardouvelis argued that Greece does not need a third bailout package, noting that the country is able to borrow from markets at a cost below that of the loans from the International Monetary Fund....

And we’ll also have an eye on whether today’s Scottish referendum vote is affecting the markets...

 

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