Forex Marketz Daily Forex News – Fully Markets Update
Coming up is the Scottish vote, a referendum, for independence from the United Kingdom. We would be hugely mistaken to think that this event will only effect a limited region.
In just a few short weeks, the citizens of Scotland will vote to either stay in the British monarchy or for their independence. We had expected them to vote ‘no’ and stay within the United Kingdom, but a recent poll in the Sunday Times shows that 51 percent of those polled would vote “YES” for a free and independent Scotland.
The effects are being felt. The British Pound is now at a 10 month low versus the U.S. Dollar. It is down over three percent on the month. The FTSE also fell yesterday, losing a tad over twenty points on the day. A Scottish, British divorce would impact the global financial markets from equities to commodities to the Forex universe. So far it is impacting equities and currencies. However, if the divorce happens, then everything and anything would feel the impact. How big the fallout will be? Nobody really knows and one cannot predict such a thing.
Scottish independence would lead Scotland to decide whether to keep the Sterling currency or join the European Union. This would be a threat to the Pound. The current account deficit of the United Kingdom would soar. Why? Scotland owns 90 percent of the oil and gas assets.
Asia will feel the impact. But how to quantify this loss is tricky. Any fluctuation in Gilt yields would impact global bond yields as a whole. Also many Asian investors have broad financial exposure to both Scottish and U.K financial institutions. From everything from bank insurers to asset manager. Asian investors will look to divest and cover open positions. Remember, these institutions have holdings in the Asian markets as well. Gilt yields have been moving lower as there are expectations that Scotland’s financial service’s industry will relocate to London. A ‘yes’ vote, and independence could cause a spike in yields.
Should the fiscal burden of the U.K. spikes higher, that will push yields up. Markets will expect more bonds to come onto the market, pushing price down and rates up. This will mean a higher debt obligation versus the United Kingdom’s gross domestic product (GDP). The impact of this is really unknown for right now. Until it becomes clearer, we are seeing his play out in the Forex markets, as the Sterling is losing value. This will affect the strength of the Asian equity markets as well as we see equities and bonds coming off.
If we get a vote for independence, then business entities, like banks, domiciled in Scotland, will look to possibly go offshore. This will come as funds leave the U.K. Banks will look for headquarters outside the area like in Singapore. Singapore is a very attractive market to be in if you want to have a strong Asian to U.K. business.
As we move closer and closer to the day of the vote, equities with exposure in Scotland should continue to weaken. We will be watching the remaining two opinion polls as will investors. Bottom line, Scottish independence will have vast and far reaching implications.
