New hopes for a 'no' vote in Scotland stabilize the Pound

Market Review

Yesterday’s S&P was initially in a downward movement and many analysts were calling for a proper break lower of the week's low which was posted a day earlier with many saying the rally has run out of steam. Although we agree to an extent with much of the market trading at record levels, the labour market average is still high after the last payrolls report and if anything a large scale sell off should not happen before there has been a substantial labour market decline or large cap stocks see a decline in revenue – which recent earnings reports have put at record highs pushing dividends to ever new records. Crude oil was also bid yesterday with new sanctions hitting Russia as well as reports of troop movements on the rebel controlled side of the border. We believe we are only moments or day’s away from the cease fire coming to an end, which is likely to be triggered by an attack on the strategically important city of Mariupol. Nasdaq initially sold off, but finished the session marginally in the green as technology stocks made a solid comeback.

Today's Fundamental View

As there were new hopes yesterday for a ‘no’ vote in Scotland, cable slowly rebounded from its lows. The currency pair has now stabilised and is currently trading in a tight range at the highest levels of the week as we expect new polls to be revealed. As the morning has been quiet in general when it comes to news, we have not seen any movement of note in other markets than crude as rebels have been reported to violate the ceasefire agreement several times overnight. Anticipation of a more hawkish FOMC next week has started taking a toll on the bond markets, and we have seen some selling pressure in this market overnight, and entered in to a tight range this afternoon. In terms of the fixed income space, it has been interesting to see the movement in Spanish bonds versus Scottish independence votes, as the market is highly anticipating the results and will draw parallels to the region of Catalonia which has similar wishes to that of Scotland. The concern of mainland Europe is the precedent set by a Yes vote in Scotland could result in dramatic ramping up of nationalistic and emotive reactions across the continent. With this year's annexation of Crimea and a potential split of the UK, there is real risk present in the market that has not been present for some time. The data calendar is quite full this afternoon, with retail sales and core retail sales being expected at 1330BST. The consumer is definitely in focus for the full afternoon with consumer sentiment from the University of Michigan being released hour and a half after. It is worth noting that the retail sales number have disappointed 4 months in a row, as has the UoM number. With a quiet morning we hope the consumer numbers will kick-start the market in a few hours. Today is long equities, short EURUSD, long crude and short TYA.

Alternative View

Any geo-political risk should be carefully analysed, with continued focus on Ukraine. The price of Apple may serve as a key indicator to index movement today.