European equities edged lower in late trading yesterday, with investors refraining from making strong bets on stocks ahead of Scotland’s referendum and the US Federal Reserve’s policy meeting next week.
Investors were cautious amid speculation about the prospects for rising US interest, ahead of the Fed’s policy meeting next week. The market will focus on the central bank’s words, seeking clues on the timing of the first US rate hike in more than eight years.
Recent talk that the Fed might turn hawkish at its policy meeting next week, possibly by dropping its commitment to keeping interest rates low, has seen US Treasury yields and the dollar steadily rise.
“In the short term, there is potential for a pullback as investors, who have been used to cheap cash and soothing words from central bankers, may have some uncomfortable side effects,” said Henk Potts, director of global research at Barclays.
“But higher interest rates will also signal that the business environment is improving, the economic backdrop is getting better and corporate profitability is growing. In the longer term, we expect stocks to move higher.”
Investors were also jittery following recent polls showing an independence referendum in Scotland next week on a knife edge.
The ICM survey for the Guardian yesterday put supporters of the union on 51 per cent against 49 per cent for those in favour of independence, excluding people who said they did not know how they would vote. A YouGov poll for The Times and Sun showed Scottish support for the union at 52 per cent.
“There’s a lot of hesitation at this point. People are reluctant to take any new positions ahead of the Scotland referendum, but also ahead of the Fed’s meeting next week which could turn out to be a real game changer,” Saxo Bank sales trader Andrea Tueni said.
“A ‘Yes’ vote can trigger considerable financial turbulence in the UK. Uncertainty over the currency arrangements Scotland would adopt and its extremely large financial sector would create a disequilibrium that financial markets would seek to balance through capital flows and distress,” Credit Suisse said.
Hundreds of thousands of Catalans packed the streets of Barcelona on Thursday to demand the right to vote on a potential split from Spain.
Shares in Aveva Group, whose software is used to design ships and nuclear power stations, tumbled 25 per cent after the group said it would take a £14 million hit from currency movements.