Ceasefire under threat as shelling heard in two cities in eastern Ukraine

Good morning,

• Osborne panics as polls swing in favour of independence vote for the first time;

• Ceasefire under threat as shelling heard in two cities in eastern Ukraine;

• Chinese trade surplus not as good as the headline figure would suggest;

• Quiet day expected as economic calendar looks a little bare.

The week has got off to a bit of a mixed start on Monday, as shelling in eastern Ukraine threatens the recently agreed ceasefire between Kiev and the pro-Russian separatists, growing support for Scottish independence prompts a last ditch effort to swing the vote back in the favour of the better together campaign, while data released overnight fails to provide much market direction.

One of the biggest drivers for the UK in the coming weeks is likely to be the referendum on Scottish independence. The voting for this was always likely to be close but only recently have polls started showing us just how close it’s going to be and a YouGov poll released on Sunday put supporters of independence in the lead for the first time. Of those who are intending to vote and know who they currently want to vote for, 51 percent said they would vote for independence while 49 percent said they would vote against it.

The problem we now face is that it’s not exactly clear what Scottish independence would mean for the economy of the UK. The uncertainty this creates at a time when people have been more focused on the strong economic recovery is far from ideal, especially ahead of the elections next year. What may concern people is UK Chancellor George Osborne’s last-ditch efforts to vote against independence by offering more autonomy on tax, spending and welfare if they remain a part of the UK. This just stinks of desperation and suggests that the UK stands to lose more from a Scottish secession than it would like to admit. This uncertainty is unlikely to help UK markets or the pound ahead of the vote on 18 September.

Less than 48 hours after a ceasefire was agreed in eastern Ukraine, shelling in two cities has threatened to reignite a conflict that many had hoped was nearing its conclusion. As long as these flare-ups continue to happen, relations between the west and Russia are likely to continue to be strained and instead of talking about lifting sanctions which could help the economies of all involved, it’s likely that more will be imposed.

European markets have received little direction from Asia overnight, despite some important economic data being released in both China and Japan. The Chinese trade surplus grew to $49.83 billion in August, which on the face of it looks encouraging, but unfortunately a closer look at the numbers make the headline figure a little less impressive. Exports rose by 9.4% during the month, which was ahead of expectations but down on the month before, while imports actually fell by 2.4%, which is likely to have been largely responsible for the growing surplus. On the bright side, imports of crude oil in August were up 17.5% compared to last year and 6% from July in a sign that the economy is doing better than some give it credit for. People had previously pointed to lower demand for oil in China as a sign that the pace of growth was slowing.

Monday, like the majority of the week, is looking pretty quiet in terms of economic data. The only release worth mentioning is the Eurozone sentix investor confidence reading for September, which is expected to fall to 2 from 2.7 as people become more concerned about slowing growth in the region and the effects the Ukraine crisis could have on it going forward. Even this is likely to have minimal market impact though so the start of the week could in fact be a fairly quiet one.

The FTSE is currently seen opening 8 points lower, the CAC 7 points higher and the DAX 38 points higher.