There are a whole host of key risk events as we know dominating the agenda for the markets this week, with the Scottish independence vote as well as the FOMC. We may well be looking at a calm before the storm before the storm in terms of markets before we get to the big risk events but before that we do have a huge amount of numbers. Todays session will be dominated by data out of the US and UK as the markets wait for the key events on Wednesday Thursday and Friday this week.
However let’s begin with the Scottish vote and the recent developments. The leaders of the three main political parties have pledged to devolve more powers to Scotland if they vote to remain in the Union and reject independence. Part of this pledge states that Scotland will be given the final say on all funding discussions around the NHS, as well as telling Scots that a vote for NO was not a vote for less control. It is very clear that whichever way the vote goes on Thursday we are likely to see Scotland win in both eventualities. With the vote coming ever closer and the polls still too close to call it is becoming increasingly hard to call. Sterling is where this uncertainty is being felt the most and it is in fact the uncertainty of a potential YES vote which is doing the damage to GBPUSD. With so many unanswered questions over currency and membership to EU and NATO, promises previously given to the Scottish people by Alex Salmond, we are seeing increasing volatility and unrest in sterling based currency pairs. The old adage reads that the one thing the market hates more than anything is uncertainty, and uncertainty we currently have bucket loads of.
To today’s session and it looks like the CPI out of the UK will be the key piece of data early on. Expectations are for a the benchmark number to remain the same holding steady at 1.8%. This will be seen as a positive step. While we had seen CPI inflation at the 2% Bank of England target over the last couple of months, the decline in the previous months had shown a worrying decline. Fears of inflation starting a steady slide to the downside will however hopefully be alleviated should this figure hold steady. They take on more importance as tomorrows sessions sees the un employment readings as well as the BoE meeting minutes. Both of these will be key to Mark Carney and the MPC, the interesting point will come in the voting. Last month a 7-2 split occurred for the first time in a number of months, any signs of this split becoming closer in terms of numbers will be a big deal for an already under pressure pound. Mark Carney has told us that average earnings numbers must be moving in the right direction in order to a rate hike in the UK to be sustainable. Tomorrows numbers could well show average earnings increase and those calling for a hike in rates at the BOE get a bigger voice, pilling on the pressure for a rate hike in the new year if not beforehand.
Ahead of the open we expect to see the FTSE 100 open higher by 7 points with the German DAX higher by 9.
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