John Kerry continues to gain support for a coalition to take on ISIS

• Poor Chinese data leads to weak start to the week

• John Kerry continues to gain support for a coalition to take on ISIS

• The Scottish vote looms and uncertainties mean volatility should ensue

Global markets are facing up to a somewhat disappointing start to the week as growing uncertainties over geo-political factors provide the backdrop to some key economic releases. Worrying data out of China on Saturday has driven the Asian markets to a poor overnight session and this is likely to follow on into the European open.

Much talk of a Chinese slowdown has been allayed in recent months, with the likes of manufacturing and services PMI figures recovering from a notable downturn in H1. However, this weekend provided a stark reminder that the worst is not necessarily over as retail sales, industrial production and fixed asset investment all moved significantly lower. PMI data is obviously a strong indicator of future performance for the output and demand within the economy. However, they are no substitute for the final outcome and that is why these figures are absolutely key. The fixed asset investment figure is certainly one of the most worrying indicators, which at 16.5%, is far lower than at any point in the last decade. However, the industrial production figure also reminds us as the underperformance seen throughout 2014, where the growth rate currently stands at the lowest level since the immediate downturn that followed the start of this crisis back in 2009. Ultimately, China’s old model relies upon investment and production on a massive scale to maintain the 7.5% growth target that has been in place for some time now. However, with the new switch in emphasis towards a consumer based economy, the retail sales figure is absolutely key to determine that there is enough domestic consumption to drive demand. With retail sales at the lowest level since April, things are not exactly going to plan in China and that is why we are seeing markets open in such a negative fashion today.

A particularly light session from an economic point of view sees the focus remain well and truly upon the whole raft of geo-political events which continue to shape risk sentiment within the markets. The death of David Haines, a British aid worker was no doubt aimed at engaging David Cameron and co, which appears to have done exactly that. As John Kerry moves around the world trying to gather support for a coalition of forces, the UK rhetoric has moved to align with that of the US in what seems to be the pretext before an extended assault against the Islamic State. The US is certainly learning it’s lessons over the choice to essentially go it alone in Iraq without international approval and thus the development of a wide ranging group of countries who are all willing to fight the same cause means that the US and UK are emboldened with their military actions. However, there must be a concerted effort made to ensure that Sunni moderates are not marginalised where Western forces are seen to simply be supporting the Shiite and Kurdish in this battle. The war will be upon ISIS and not Sunni Muslims per se, but with previous examples of a strong social media and marketing strategy in place by ISIS, it is clear that they would likely try to change the context of the war to suit their recruiting needs. Should the war move into a stage where it is perceived as simply an attack upon Sunni’s, there would be no future in Iraq which returns to the coexistence of Kurds, Sunni and Shiite alike. This of course would mean that all Sunni moderates would end up fighting for ISIS given their persecution and treatment due to their creed.

The Scottish referendum is fast approaching and with polls too close to call, many within the markets are beginning to wake up to the distinct possibility that the pound and UK markets could see some significant volatility as the week goes on. For the most part, the markets appear to have factored in a vote for ‘No’, which appears to be the most likely event. However, the feeling is that as we approach the vote, the ‘Yes’ camp is making gains and bringing the tie closer together. Ultimately, the decision is Scotland’s to make and for the most part it appears to be that the ‘No’ vote is driven by the head, whilst a ‘Yes’ vote is driven by the heart. No doubt, a few reruns of Braveheart would push more towards the vote for independence. However, the worry remains as to the whole raft of unknowns associated with this move, where Alex Salmond has offered virtually no guarantees regarding some of the most crucial tenets of British life. Everything from the currency, to taxation and EU membership remain on a trust basis and with the ‘No’ camp unwilling to discuss such negotiations until the vote has been cast, it really is a shot in the dark for the Scottish people. For the markets this means that there is not only uncertainty in the vote, but also in the eventual outcome in the event of the vote going in favour of independence. The most central of these is no doubt the use of the Pound sterling, which despite being claimed as being ‘as much Scottish as English’, would be a massive bone of contention should Scotland not share the same central bank. Initial signs point towards Scotland dropping out of the use of the Pound which would massively devalue the currency due to weakened demand for the good and services of the UK. However, much like many other parts of this vote, this is a massive unknown and thus it is certainly a difficult decision for the Scots who must choose between the known and the unknown. Most risk averse would likely choose the known, yet increasingly there is a growing number willing to chance it in search of a greater degree of self-determination.