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 With a ceasefire in Ukraine tentatively holding and markets
underpinned by Chinese stimulus hopes and last week's salvo of ECB
support measures, European investors were left mulling a potentially
messy divorce in the UK that, up until now at least, most had viewed
as an unlikely risk.
Another eye-catching mover was Brent crude as it fell below $100 a
barrel, having posted its third weekly drop in four weeks last week.
Traders fingered disappointing Chinese data which stoked speculation
about whether authorities would have to loosen policy further to
revive demand in the world's second biggest economy.
But in Europe, attention was focused on Scotland's Sept. 18 vote on
whether to break away from the rest the United Kingdom. A weekend
poll showed the "Yes" to independence campaign on 51 percent versus
49 percent in the "No" camp.
Though it excluded those who would not vote and did not know how
they would vote, it overturned the 22-point lead the unionist
campaign had just a month ago and showed the momentum now being
carried by the split side.
It rattled sterling which saw its biggest fall in 13-months on the
dollar in Asia to $1.6169, though there was little movement beyond
that in early European trading.
London's FTSE, however, was the region's worst performing bourse
down 0.4 percent with 6 of its 10 biggest fallers based in Scotland
while bond markets saw UK yields tick up. [.EU]
"The pound is predictably taking a hit, my base case is still that
there won't be a split but should there be a yes vote the pound will
look vulnerable because of the 12-18 months of uncertainty that
would lie ahead," said Neil Williams, chief economist at UK-based
fund manager Hermes.
Though the uncertainty was largely confined to the UK, it gave the
rest of Europe a chance to cash in on some of the previous week's
strong gains. The European Central Bank's new salvo of support
measures announced on Thursday continued to weigh on the euro and
kept core euro zone bond years hovering at all-time lows.
Risk sentiment was also generally supported after Friday's
lackluster U.S. jobs report was interpreted as suggesting the
Federal Reserve may opt to hold off on hiking U.S. interest rates
anytime soon.
The S&P 500 hit a fresh closing high on Friday and high-flying
emerging market stocks, which tend to be highly sensitive to U.S.
monetary policy predictions, made 0.2 percent gains on Monday
in-line with the Nikkei in Japan.
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DELICATE CHINA
Chinese markets were closed on Monday but Chinese trade data was
released that supported bets on new stimulus from Beijing. An
unexpected fall in imports raised concerns about tepid domestic
demand in the world's second largest economy.
In contrast to sterling's sharp moves, other major currencies were
treading water. The dollar was steady on the day at 105.09 yen,
remaining shy of its near six-year high of 105.71 touched on Friday.
The euro also steadied at $1.2943, holding above last week's
14-month low of $1.2920. Net short positions in the euro ballooned
in the week ended Sept. 2, rising to their largest in more than two
years, according to Commodity Futures Trading Commission data
released on Friday.
"The less extreme positioning in sterling and the looming Scottish
referendum may mean that sterling lags behind the euro during the
days ahead," Marc Chandler, global head of currency strategy at
Brown Brothers Harriman in New York, said in a note to clients.
On the commodities front, spot gold was flat at $1,268.61 an ounce,
well above a three-month low of $1,256.90 hit on Friday before the
U.S. jobs data.
(Reporting by Marc Jones; Editing by Toby Chopra)
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