Financial markets were optimistic as polls opened in Scotland for its referendum on independence with analysts expecting a victory for the No campaign
By Kevin Loane
Thursday, September 18, 2014
Equities stateside followed their European counterparts higher despite mixed domestic data at home that made it difficult to accurately gauge underlying strength in the economy. The S&P 500 opened with a pop, rising 0.27%, or 5.41 points, to 2006.98. The Dow Jones Industrials Average, meanwhile, also began the session on positive footing, increasing 0.24% to 17,198.24.
Financial markets had plenty to focus on but the Scottish referendum was perhaps the most keenly watched event. Initial reports suggested that voter turnout would be extremely high as residents exercise their right to vote on independence. The final results will not be released for up to twelve hours hours after the polls have closed, but the general consensus is that voters will opt to remain a part of the United Kingdom. Investors took this market-friendly outlook at face value and bid up the price of the British pound. By 14:30 BST GBP/USD had risen 0.66% to 1.6374. But nonetheless remains down over the past month. If the results come in as anticipated, further gains cannot be ruled out.
Back on this side of the Atlantic, mixed data pointed to weakness in the housing market against a backdrop of strong labor market information. Building permits for fresh starts fell by a greater-than-expected 5.6% (Consensus: -1.6%) in August, while housing starts declined 14.4% (Consensus: -5.2%). The surprisingly weak numbers were in contrast to a positive labor market release that showed a marked decline in the number of Americans filing insurance for unemployment benefits. Initial jobless claims fell sharply to 280k, confounding expectations for a 305k figure. The data suggest labor market strength, and may raise expectations for a strong September payrolls number.
Separately in Europe, there were further signs of stagnation as the European Central Bank (ECB) announced figures detailing its targeted long-term refinancing operation (TLTRO). The ECB said that it lent EUR 82.6 billion to at a fixed interest rate of 0.15% to banks across the euro zone. The downbeat figure was much lower than the EUR 100 – 300 billion that analysts had anticipated, indicating a fairly weak outlook for demand in the region. ECB chief, Mario Draghi, has suggested that policymakers aim to increase the size of its balance sheet to EUR 3 trillion. If banks are unwilling to help achieve this figure, then rate setters may be forced into a full-blow quantitative easing program focused on government securities.
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