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Has The Market Some Predictive Power?

18 September 2014 by lberuti

Over the last couple of weeks, the uncertainty surrounding the referendum that will decide whether Scotland will chose independence has been very high. After a summer during which everyone took the result for granted, recent polls gave too close to call outcomes. But since the beginning of the week, investors have begun to show confidence again in a united Britain. The pound sterling has regained some ground against the Euro and the USD. In the credit market, the UK banks have seen their risk premium decrease. The same was true for the Spanish banks which suffered recently from potential contagion risk on the back of the momentum all claims for independence (and particularly from Catalonia) would gain in the case of a “Yes” victory. Even though access to the voting booths is still possible for another few hours, financial markets have already announced that Scotland will not severe the ties with the United Kingdom. We shall see tomorrow whether they are more reliable than the polling institutes.