It would be hard to open the week without being painfully aware of the week-end polls taken on behalf of The Sunday Times and which for the first time show the Yes camp in the Scottish referendum on sovereign independence in the lead. What started out as the shrill cries of a bunch of lunatics assembled behind the rather dubious character of Alex Salmond has seemingly awoken one nation but as yet not another one.
Up until now the response of both the rest of the United Kingdom, and most of the outside world, has been “Yeah, yeah, sure….” or, amongst younger observers, “Wa’ever….”
Suddenly the cat has been firmly set amongst the pigeons.
Cable, trading as recently as July close to US$1.72 (I was recently asked by someone who should have known better what “cable” meant and to whom I had to explain that pound/dollar used to be quoted by way of the transatlantic cable, and which also long remained the only currency against which the dollar is quoted rather than it being quoted against the dollar) has had a horrid time, opening this morning at just under US$1.62. That represents a fall of just under 6%. Four of those ten cents have been lost in the past three days, the previous six fell victim to the Bank of England’s flip-flopping over its tightening policy.
Smart money still expects a No vote, as it is expected that the undecided will, when push comes to shove, vote for the devil they know. I’m not sure whether that is an unprepared world whistling in the dark but I too remain confident that good sense will prevail. If not, a significant amount of repricing of any asset with a British flavour will be needed and, as yet, nobody I can think of has a clue where to start.
One thing that is clear is that the flight of US companies into what is known as tax inversion – just today another announcement hit the screens in which FMC Corp, the US agrochemicals group, has acquired its Danish rival Cheminova – will be child’s play compared to the flight of Scottish based companies to England. I’d be surprised if most senior management teams and company boards north of the border had not begun to develop exit strategies in the keen hope that they will never have to be implemented.
It may sound trite but the Scottish economy stands largely on three legs: oil, banking and the civil service – plus, if you care, the distillation and export of a rather fine beverage. Banking would struggle if cut off from London, as would the many thousands of government jobs. The loss of the significant income generated by the armed forces would also hurt immensely. I suppose Scottish regiments and soldiers would have to be re-branded as mercenaries or not?
Slippery question
That leaves oil. The key debate is as to what reserves are left and how long an independent Scotland might be able to live on them. The size of the reserves is, as far as I can gather, about the same as the length of a piece of string. Estimating the reserves is hard enough, but working out how much of what is there is economically viable is akin to pinning the tail on the donkey.
Alas, the vote is not a matter of rational thinking in the way it ought to be – we hate being the lesser, under-represented part of the United Kingdom but we desperately want to be a tiny, cold and wet speck on the map of the EU super state instead – but is being driven by emotions. Neither pro nor anti camps have a clue what an independent future might or might not bring. I just hope that the Scottish people decide that it isn’t worth trying to find out who is right. I do, however, see Alex Salmond as the kind of guy who loves to show the goals scored while never looking at the goals conceded, even in a 5:3 defeat.
Meanwhile, Gilts have so far barely reacted although it is probable that they will benefit from absorbing some of the money which might be looking to exit the equity market which will most surely reflect some of the volatility which has befallen the currency. I would, and this might be against the grain, be a better buyer for choice.
The world has otherwise of course not stood still with a Friday giving us a very disappointing US employment report with the Non-Farm Payroll result rising by 142k as opposed to the consensus forecast of 230k. Both Private Payrolls and Manufacturing Payrolls significantly missed forecasts too The follow-through from the recently strong construction figures seems to be missing and markets are perplexed. The feeling seems to be the weakness is in the compilation of the statistics rather than in the economy and volatility in the Treasury market after the release reflected the uncertainty what the numbers were telling us.
The S&P 500 closed at a new high of 2,007.71 points which was its 5th close above the magic 2,000-point barrier, which for technicians should be enough to make 2,000 points now a support level rather than one of resistance. Stay long.
