Pound Drops on Scotland as Hang Seng Index Falls on China

By Emma O’Brien and Nick Gentle

 

Photographer: Jeff J Mitchell/Getty Images

Yes and No campaigners in Blantyre, Scotland, on September 4, 2014. Scotland’s... Read More

The pound slid to its weakest level since November after a poll showed the campaign for Scottish independence in front for the first time. Treasuries climbed with wheat while Hong Kong stocks retreated as Chinese imports unexpectedly fell.
The British currency lost 0.7 percent to $1.622 by 12:39 p.m. in Tokyo, extending last week’s 1.6 percent drop, while FTSE 100 Index futures were little changed in early trade. The MSCI Asia Pacific Index (MXAP) fluctuated as the Hang Seng Index slipped 0.4 percent. Ten-year Treasury yields fell two basis points and Standard & Poor’s 500 Index futures retreated 0.1 percent after the U.S. gauge closed at a record Sept. 5. Wheat and soybeans rose a second day.
The percentage of voters in favor of Scotland breaking from
the United Kingdom rose to 51 percent less than two weeks before the referendum, according to a YouGov Plc poll for the Sunday Times. China’s imports fell 2.4 percent in August, missing the 3 percent increase estimated by economists and helping to send the trade surplus to a record $49.8 billion. An unexpectedly weak U.S. payrolls report damped speculation the Federal Reserve will bring forward rate increases.
“The sharp uptick in investor caution with regard to Scotland reminds us that political risk is very much alive and well in currency markets,” Raiko Shareef, a markets strategist in Wellington at Bank of New Zealand Ltd., wrote in an e-mail to clients. “This reflects investors pricing in significant economic and political uncertainty including the thorny issue of whether an independent Scotland would retain the pound.”

Dollar Index

Support for the No side dropped to 49 percent in the YouGov survey when undecided respondents were excluded.
The pound slid the most since July 2013 last week, with gauges of futures price swings climbing after a previous YouGov poll indicated the No campaign’s lead was shrinking. The question of whether a go-it-alone Scotland will be able to keep the pound in partnership with the remaining parts of the U.K. has dominated the independence debate with all the major parties in London saying they would oppose it.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, including the pound, was little changed today after falling 0.1 percent Sept. 5. The gauge climbed 0.9 percent last week, its third consecutive weekly advance.
Trading venues in mainland China and South Korea are closed today. Markets in Hong Kong are closed for a holiday tomorrow, when the mainland resumes trading. South Korea doesn’t reopen until Sept. 11, with markets shut for the Harvest Moon festival. Taiwan is also shut today.
Hong Kong’s Hang Seng Index retreated for a third straight day, while the Hang Seng China Enterprises Index fluctuated. The S&P/ASX 200 Index (AS51) in Australia, which counts China as its biggest trading partner, dropped 0.5 percent.

China Trade

Overseas shipments increased 9.4 percent from a year earlier, the Beijing-based customs administration said today, down from expansion of 14.5 percent in July and compared with the 9 percent median estimate in a Bloomberg News survey. Imports unexpectedly dropped 2.4 percent after shrinking 1.6 percent in the previous month, the first back-to-back decline since June last year.
Japan’s Topix index climbed 0.4 percent and the Nikkei 225 Stock Average gained 0.2 percent. Japan’s economy contracted at an annualized rate of 7.1 percent in the second quarter, data today showed, exceeding a preliminary estimate for a 6.8 percent drop. Japan boosted its sales tax in April.
“The bounce Japan was looking for after the sales tax increase hasn’t really materialized,” Richard Jerram, chief economist at Bank of Singapore Ltd., the private banking unit of Oversea-Chinese Banking Corp., said on Bloomberg TV. “It looks like the economy needs more support.”

Asian Holidays

The MSCI Asia Pacific Index gained 0.4 percent last week, as an MSCI gauge of global stocks climbed 0.2 percent in a fourth straight week of gains. MSCI’s Emerging Markets Index jumped 0.8 percent in the five days to Sept. 5, reaching a three-year high during the week.
U.S. employers added 142,000 workers to nonfarm payrolls in August, the least this year and below the lowest estimate in a Bloomberg survey of economists. The gain for July was revised to 212,000, while the American jobless rate fell to 6.1 percent from 6.2 percent, reflecting a drop in joblessness among teenagers.
Yields on 10-year Treasuries fell two basis points, or 0.02 percentage point, to 2.44 percent today, after rising 12 basis points last week. Similar-maturity Australian government bonds yielded 3.44 percent, down three basis points.
The Fed is gauging the strength of the labor market as it winds down its unprecedented bond-buying program and considers the timeline for increasing rates. Policy officials led by Chair Janet Yellen next meet Sept. 16-17.

‘Risky Strategy’

Increasing evidence that the economy is strengthening has fueled speculation the Fed may raise rates sooner than investors anticipate. Charles Plosser, president of the Fed Bank of Philadelphia, said in a speech at the weekend that the U.S. economy has “moved much closer” to the central bank’s goals and keeping key rates near zero until those targets are achieved is a “risky strategy.”
The Fed can’t be certain whether full employment has been reached, and waiting for the labor market to fully heal before raising the main rate risks a sharper increase in borrowing costs later, Plosser said in Amelia Island, Florida.
Wheat futures for December delivery added 0.7 percent to $5.3875 a bushel today, after climbing 0.9 percent Sept. 5 to snap a four-day drop. Soybeans for November delivery gained 0.4 percent to $10.255 per bushel, following last week’s 0.3 percent drop.

S&P 500

The Fed is at odds with central banks in Europe and Japan, which are maintaining or boosting stimulus to fuel economic and price growth. The European Central Bank unexpectedly cut benchmark interest rates last week, and announced an asset-buying plan with inflation languishing at 0.3 percent last month.
The S&P 500 climbed 0.5 percent to 2,007.71 Sept. 5, ending the holiday-shortened week up 0.2 percent, its fifth straight weekly advance. Signs of easing global geopolitical tension aided gains.
While Ukraine and pro-Russia rebels agreed to a cease-fire Sept. 5, explosions continued in the eastern city of Donetsk at the weekend with both the government and separatists reporting violations of the truce and casualties. Still, Ukraine’s National Security Council said yesterday that there is no talk of ending the truce, now in its third day. The next talks on the conflict, which has claimed more than 2,500 lives, may take place in a week.
Palladium rose 0.3 percent to $892.48 an ounce, while platinum increased 0.2 percent to $1,411.81 and silver added 0.4 percent to $19.2757. Gold was little changed at $1,270.32 a ounce after sliding 1.4 percent last week.