Equity markets continue to creep higher causing pain to those who stubbornly sit on cash and then fail to act during the brief spells when equity markets have paused for breath in 2014.
The geopolitical scene, having shown little signs of improving, does not at present appear to be impacting developed equity markets. The FTSE 100 is once again reaching the top end of a trading range that has now lasted more than a year, and the S&P 500 has now broken through the 2000 point barrier for the first time in history. The pain the individual managers feel will be transmitted up the chain of command and soon the risk managers and Chief Investment Officers will begin applying pressure, as the year end gets closer, to put that money to work. Use it or risk losing it will be the mantra.
Central bankers in the US and the BofE continue to remain vague about the timing of interest rate moves, probably as they themselves remain unsure when the moment will be right. On the other hand equity markets are becoming more convinced as each day passes that the ECB is getting closer to the day they introduce their own form of QE, particularly after last week's speech from Mario Draghi.
Monday night saw Alex Salmond perform better in the second of the live TV debates ahead of the upcoming vote for Scottish Independence on the 18th of September. Within the next 9 months the UK faces two important elections, firstly the Scottish vote and then in May next year the general election. So far one gets the sense that neither of these events have played much of a part in investors' thinking, although analyst research is starting to focus on the implications of the upcoming Scottish vote.
Citi research believes a Scottish yes vote would have consequences in particular for the currency union as well as the banking sector. In their opinion a currency union with the UK is not a viable option for an independent Scotland. With Scottish banks having assets of over 1000 pct of Scotland’s GDP this may force them to relocate across the border, as providing deposit guarantee assurance could threaten Scotland’s fiscal position. As for the UK a yes vote according to Citi could have some repercussions for UK growth, the greater impact will probably be the effect on the political landscape as they see UKIP being the big winner of a yes vote and Cameron being the big loser.
Citi concede that the possibility of a yes vote remains “odds against”, but a no vote may still have implications going forward. Opinion polls will start to become a regular event and the news channels will raise the profile the closer the day of the vote. At present investors either appear confident of a no vote or are unconcerned for a yes vote. Equity markets as a rule dislike uncertainty and if the yes campaign starts to gain a little momentum it might add some volatility to UK equities in the coming weeks, providing another opportunity for cash rich fund managers.