MacroScope

Too close to call

Cakes are seen at a tea-party organised by members of the group 'English Scots for YES' near Berwick-upon-Tweed on the border between England and Scotland

A second opinion poll in three days has put the Scottish independence vote as too close to call.

TNS gave the “No” vote 39 percent  support and “Yes” 38. Its last poll in late July gave the “No” campaign a 13-point lead. Taking only those who are certain to vote, the two camps are tied at 41 percent.

The figures look different to YouGov’s weekend poll which sent a jolt through London and Scotland. It gave the secessionists a 51-49 lead but the direction of travel is clear and with only nine days to that could be decisive.

The counter argument is that voters now have a week and more to ponder the fact that their vote could be the one that counts. It’s easier to vote for dramatic change when it’s unlikely to happen.

Both the latest polls show that if the union holds together it will be old people that will have delivered. Women and Labour supporters, previous “no” strongholds, are deserting fast. The other question is whether there will be a “shy No” vote.

10 days to define the United Kingdom

The Flag of Scotland, the Saltire, blows in the wind near Berwick-upon-Tweed on the border between England and Scotland

The earthquake may be about to happen. Over the weekend the first opinion poll putting the independence campaign ahead landed with a resounding thump.

That prompted the UK government to rush forward to this week plans to spell out what further devolved powers Edinburgh would get if the Scots vote to stay on Sept. 18.

With the caveat that the last two dramatic polls have both been from one group – YouGov – and others have suggested “No” remains ahead, it seems momentum is well and truly with Alex Salmond.
In response, sterling has fallen about 1 percent in Asian trade to its weakest level in nearly 10 months. The pound has now dropped the best part of three percent against the dollar this month. The banks and other business will now be seriously alarmed as well.

Will the guns fall silent?

A Ukrainian serviceman smokes as he sits on an armoured vehicle near Kramatorsk

Ukrainian President Petro Poroshenko and the main pro-Russian rebel leader said they would both order ceasefires on Friday, provided that an agreement is signed on a new peace plan to end the five month war in Ukraine’s east.

Talks are due to resume in the Belarussian capital Minsk. On Wednesday, following a string of aggressive statements in previous days, Vladimir Putin put forward a seven-point peace plan, which would end the fighting in Ukraine’s east while leaving rebels in control of territory.

Poroshenko expressed “cautious optimism” about the Minsk talks but given the rebels have advanced rapidly across eastern Ukraine in the past week, backed by what Kiev and NATO say is the support of thousands of Russian troops with artillery and tanks, the balance of interests in calling hostilities off has shifted.

What’s it all about, Mario?

RTR3OB5X.jpg

It’s ECB day and after Mario Draghi’s recent dramatic utterances, expectation for fresh action has grown, expectations which are likely largely to be dashed.

Draghi told the world’s central banking elite in Jackson Hole last month that market inflation expectations were falling markedly and the European Central Bank would use everything in its power to stabilize them in order to avoid a deflationary spiral. He also ripped up central banking orthodoxy by calling for more fiscal spending by governments at the same time as redoubling economic reform efforts. How to read that?

Two possibilities spring to mind. Either Draghi (who has talked with a number of EU leaders recently) thinks he can secure fresh a  commitment on structural reform and can use that to go back to his ECB colleagues to argue they should cross the ultimate Rubicon and start printing money in return.

Over to Obama

U.S. President Barack Obama walks towards Air Force One before departing for Estonia while at Andrews Air Force Base outside Washington

Barack Obama is in Estonia before the NATO summit in Wales intending to pressure Vladimir Putin to back off in Ukraine. The rhetoric will be strong – not least about protecting the Baltics under NATO’s umbrella.

But with zero chance of western military action in Ukraine the hope is that economic pain via sanctions will bring Moscow to heel. Existing sanctions are clearly hurting the economy – the rouble has plumbed record lows as capital flees or shuns the country – but that hasn’t stopped Putin so far.

He seems intent not on taking Ukraine over but keeping the rebels sufficiently well armed and supported to keep Kiev off balance and unstable. If that is the intention it has certainly succeeded.

Jaw jaw and war war

An Ukrainian serviceman is seen next to a sight for a gun near the eastern Ukrainian town of Luhansk

Pro-Russia separatists at talks with representatives from Moscow and the OSCE in Minsk said they would be prepared to stay part of Ukraine if they were granted “special status”, which is unlikely to be acceptable to Kiev.

The talks will continue later in the week and come as the Ukrainian military faced a run of reverses on the battlefield which Kiev says have been engineered by the intervention of at least 1,600 Russian combat troops.

In the latest in a string of setbacks, Ukraine’s military said it had pulled back from defending a vital airport near the city of Luhansk, where troops had been battling a Russian tank battalion. Ukrainian President Petro Poroshenko accused Russia of “direct and undisguised aggression” which he said had radically changed the battlefield balance. Moscow denies it is involved.

Nearer the brink

A man walks past cutting boards, that have been painted with images of Russia's President Vladimir Putin, at a street store in the center of St. Petersburg

Ukraine is nearer the brink with Russian forces now pretty clearly operating over the border. The past week has seen Ukrainian forces flee in the path of a new rebel advance which Kiev and its western allies says has been directly aided by Moscow’s forces.

Russian President Vladimir Putin called on Sunday for immediate talks on “statehood” for southern and eastern Ukraine, though his spokesman tried to temper those remarks, that following an aggressive public showing in which Putin compared the Kiev government to Nazis and warned the West not to “mess with us”.

The deputy leader of the breakaway east Ukrainian region said he would take part in talks with representatives of Moscow and Kiev in Minsk today but did not expect a breakthrough. Russian foreign minister Lavrov is out saying the Minsk talks will aim for an immediate ceasefire without conditions although he also said Ukrainian troops must vacate positions from which they can hit civilian targets. Meanwhile, eight Ukrainian seamen have been rescued, two are still missing, after a patrol boat was sunk by artillery.

The ECB keeps putting up the cash, but where’s the lending?

Draghi and TrichetFor the European Central Bank, a lot is riding on euro zone banks ramping up lending to the private sector. Unfortunately, after a very long time, lending still is not growing. It fell 1.6 percent on a year ago in July.

Struggling with a dangerously low inflation rate that is expected to dip even further to 0.3 percent in August, the ECB placed a big bet back in June that hundreds of billions of euros more in cash for banks in further liquidity auctions in October and December this year would help turn the situation around.

The catch: instead of no strings attached, as its policy was in the past for allowing banks access to cheap money, these long-term refinancing operations (LTROs) will require banks to set aside some money to lend to the private sector. So these ones are targeted, hence why the ECB calls them TLTROs.

Fed’s embrace of labor market is complete at Jackson Hole, 20 years later

Fischer, vice chairman of the Federal Reserve System, speaks with a demonstrator at the Jackson Hole Economic Policy Symposium in Jackson HoleBy Michael Flaherty, Howard Schneider and Jonathan Spicer in Jackson Hole, Wyo.

To dig deeper into the significance of Federal Reserve Chair Janet Yellen’s message at the annual central banking summit in Jackson Hole this past weekend, go back twenty years to the same event, when a top Fed official sparked a firestorm by showing support for the labor market. At the end of the 1994 symposium, the new Fed vice chairman at the time, Alan Blinder, gave a 14 page overview in which he stressed the point that central banks have a role in reducing unemployment.

The comments prompted speculation that he was opposing the views of his free-market boss, Alan Greenspan, and a media frenzy ensued — a frenzy that people present at the time say Blinder never recovered from. The contrast between what happened at Jackson Hole two decades ago, and what happened there last week shows how far the Fed has swung in its embrace of the labor markets, and how far it is ready to go.

For Yellen, the deeper aim may lie in research discussed over the weekend. Several papers dealt with the risk that short term cyclical problems in labor markets could become long term problems if people are left out of jobs, lose skills or young people fail to get a foothold.

UK rate consensus nearly rock-solid even as markets flip-flop over timing

BFor all of the flip-flopping in sterling markets in recent months over when the Bank of England will finally lift interest rates off their lowest floor in more than 300 years, the consensus view among forecasters has been remarkably stable.

Not only that, but surprise news that two of the nine members of the Monetary Policy Committee voted this month to hike Bank Rate by 25 basis points to 0.75 percent does not seem to have shaken the view that it will be early next year before rates go up.

The Reuters Poll consensus — which the BoE uses to brief the MPC on policy expectations and cites each month in the minutes — has concluded on each occasion since March that a UK rate hike is not going to happen until the first half of 2015. Before March, the view was that it was likely to take even longer.