Sterling battered by news that the ‘YES’ vote might win in Scotland

September 8, 2014

Non-farm payrolls in the US were much weaker than expected on Friday night printing just 142,000 against expectations of around 230,000 but in many ways it is the unexpected ascendancy of the Yes vote in the Scottish Independence referendum that will have traders talking this morning. Whereas most though the vote would be solidly defeated the vote, due September 18, looks like it is going to go down to the wire according to the BBC. Currency traders will be watching closely and the Pound is already under pressure this morning in early Asian trade.

Early Asia on a Monday is the most dangerous time to trade currencies and this mornings big dip in Sterling could prive short lived given it has gapped so far. But it is a currency under siege at the moment so rallies are likely to be sold into by traders with big support around the 1.60/6050 region.

Elswhere on Forex markets it looks like it is time for the RBA to follow words with action. Professor Ross Garnaut has given the RBA some advice about rate cuts and perhaps it should be heeded given the Aussie rallied on Friday rising to 94 cents again before easing back to be 0.9366 at the moment.

In technical terms it’s gone nowhere but the economy is suffering. You can’t trade on that though so trade the range.

Euro is at 1.2952, USDJPY sits at 105.08 and the pound has tanked down to 1.6178 on the Scottish referendum closeness.

Back to Friday though and the signing of the Ukrainian ceasefire – which looks like it has been breached by both sides already – and the weaker than expected non-farm payrolls gave stocks in the US impetus to break higher with the S&P 500 closing at a new all-time high of 2008 up 10 points for a gain of 0.51%. The Nasdaq rose 0.45% to 4,583 and the Dow was 67 points higher at 17,137 for a gain of 0.39%.

Many believe that the lower than expected number of jobs created in August gives rise to a kind of goldilocks economy in the US where growth is positive but not strong enough to force the fed to hike rates soon. One number however, like a lone swallow before summer, does not mean that growth has suddenly slowed. But this data point suggests markets might be more receptive to the data flow over the month ahead meaning stocks should/could remain bid.

In Europe the post-Draghi euphoria faded a little with the 2.8% inflation rate in the UK and the fall in sterling combining to hit the FTSE a little and stocks in London finished down 0.33%. The DAX however was up 0.23% while the CAC fell 0.2%. Stocks in Milan and Madrid went in opposite directions down 0.11% and up 0.44% respectively.

On the local futures market the SPI 200 September contract fell 2 points to 5,591 while the December contract fell 11 points to 5,590. Friday’s trade saw a lack of the buying on dips that had been usual on the ASX recently so traders will be wary today and this week.

I’m now short the SPI.

In Asia Friday the Shanghai recovery is phenomenal and it rose another 0.83% to 2,326. Prices are now at levels not seen for 15 months and back toward the Feb 2013 highs. The Nikkei was largely unchanged down just 0.05% and the Hang Seng fell 0.23%.

On commodity markets iron ore fell again with September 62% futures off another 87 cents a tonne to $83.84. Newcastle coal was also lower with September futures falling 45 cents to $66.0 a tonne.

Nymex crude fell 1.06% to $93.45 a barrel, gold settled at $1,269 an ounce and silver is back above $19 at $19.22. On the Ags wheat rose 0.94%, corn was 2.66% higher and soybeans were up 1.77%.

On the data front today it is all about Asia with the release of Japanese GDP and Chinese trade. ANZ job ads are out locally and then we see German trade tonight.

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