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UK stock market commentary (October 16, 2012): Will the Scots really want to leave?

Why do we have to wait so long to see whether the Scots want to run their own ship or stay within the Union? It is unlikely to make the outcome any different to what the polls currently say and if they do actually vote for an independent state it would seem that they are going to keep all the “good” bits as part of the deal anyway. Whilst a small proportion of Scotland would love to see their country as a fully independent state the majority are more than content with the status quo as people on the whole simply don’t like change. Much of the tax generated within the Union is spent on excellent public services, in particular health, north of the border and so those against a break up see no reason to threaten that. One of the key industries for the country is still on life support and if the vote goes the way of independence then Westminster would probably be more than happy to offload the toxic banks that they are still supporting with taxpayers money, which wouldn’t be the best of starts for a country starting off on its own again.

The vote is a long way off and the campaigning will be long and hard over the next couple of years. The SNP faces an uphill struggle to try and win the referendum by persuading Scots they’ll be better off outside the Union, but it is another issue that the coalition could probably do without ahead of the next general election.

Today sees a little more excitement in terms of economic data as we get inflation figures from the UK and the German ZEW survey. For the UK inflation is expected to take the next step back towards the BOE’s target of 2% with expectations of the rate coming in at 2.4%, although there could be a bigger move to the downside since this September has not seen the energy price rises that were introduced in September 2011, we can look forward to those later this year. For Germany the current conditions reported by ZEW are expected to decline as after all things on the continent aren’t looking all that great and a deeper recession is looming, although the economic expectations are due to improve a little.

European indices are heading higher in early trade this morning and our earlier calls were spot on with the FTSE up 30 points to 5835 at the time of writing. Clients are opposing the move by selling into the strength of the last couple of days expecting the range bound moves to continue. Without a breakout in either direction there’s no reason why one shouldn’t expect the index to turn lower soon as the FTSE continues to bounce between highs and lows on low volumes and volatility.

Ahead of a European leaders’ meeting scheduled later this week to address the debt crisis, the shared currency closed slightly lower against the US dollar at 1.2948. The potential Spanish bailout and a fresh call for help from Greece will be high on the agenda. In the meantime, investors will be keen to find out the economic sentiment in Germany with the release of ZEW indicator.

Higher than expected export readings for China put a stop on speculation for additional economic stimulus and in turn triggered a selloff in gold. That continued for the entire session also helped by a slightly stronger greenback with gold prices losing $16.5 to $1736.8. The chart indicates a shift to the downside in the short term trend.

Initially, the WTI crude prices moved down on news that New York manufacturing is struggling. However, a recovery in the stock market changed the sentiment dragging oil prices up as retail sales figures topped estimates. Overall, it was only a marginal gain of just 19 cents to $92.21 with energy investors possibly waiting for further news from Middle East before deciding on the next direction for oil prices.