UK Market Comments

The first big event of the week gets underway this evening, and while US indices are higher ahead of the FOMC, in the UK the referendum takes precedence over all other events.

UK markets

Investors wondering why the FTSE is unable to make progress need only look north of the Tweed to see why. The Scottish polls are still too close to predict an outcome with any certainty, but while the broad expectation in the Square Mile is that Scotland will vote ‘No’ (helped along by a barnstorming speech by former PM Gordon Brown), no one is prepared to risk too much until the result is actually known. Shareholders in Smiths Group that were hoping for a sale of the firm’s medical unit registered their disappointment with the decision not to mount a sale by pushing the share price down by over 4%, evidently unhappy that there will be no special dividend windfall heading their way. Barratt
Developments continues its post-results rally, hitting its highest level since April, but as the surge continues investors will do well to remember the warning in the latest report that suggested activity levels will dip in the coming year.

US markets

Investors can relax now that the S&P 500 is back above 2000, as the dip buyers were rewarded yet again, while the broader community views the imminent FOMC meeting with a greater degree of calm than was the case two days ago. It is never wise to fixate entirely on one single sentence in the statement, and Janet Yellen could confound expectations by finding a new way of wording her monetary policy view that doesn’t utilise ‘considerable time’ while simultaneously providing comfort to bond markets. The weaker CPI reading gives her yet more room for manoeuvre, while investors panicked by a possible ‘Yes’ in Scotland can at least be reassured that the Fed is not about to take a sudden turn into hawkish territory.

Commodities

Gold has enjoyed another rise today, but it has found it hard to push above $1240 with the Fed looming this afternoon. Traders are very conscious that any hint of increased hawkishness from the Fed statement or in the following press conference could signal the start of a fresh downward move in gold. Though the weaker CPI number will incline the committee to dovishness, the lack of price growth in the US means that not even the inflation argument is going to lift precious metals. Oil is rebounding modestly too, but the current dynamic of supply and demand indicates that both these elements will keep a lid on any sustained rally.

FX

The pound has moved out to its highest level in almost two weeks, but it seems like a temporary rally ahead of the most momentous decision for the UK in almost a century. Euro watchers should conceal their glee at the pound’s troubles, since Catalonia is making increasing noises about its own vote, and it might not be the only one. There are plenty of regions in Europe nursing grudges, and this would be just the kind of element to shove the eurozone crisis back into life again.