LONDON (Reuters) - British financial markets were laying bets that Scots would vote “No” on independence on Thursday, pushing the pound to a two-year peak against the euro and Scotland-based stocks higher in the final hours of polling.
Ever since a poll almost two weeks ago showed a surge in support for the “Yes” campaign, worries have been growing that Scotland would vote for independence, sending a shock wave through Britain’s political and financial system.
But as trading rooms got ready for an all-night vigil before the results are known early Friday morning [ID:nL6N0RI46Q], the polls started to shift. Sterling added to gains this week when the latest survey showed the “No” vote holding its slender lead.
The poll on Thursday, published by London’s Evening Standard newspaper as Scots began to vote, showed 53 percent in favour of the status quo, versus 47 percent for independence. In contrast to previous polls, undecideds totalled only 4 percent.
“It seems people are growing reasonably confident of a ‘No’ vote in Scotland,” said Ian Gunner, portfolio manager at Altana Hard Currency Fund.
Sterling gained more than 0.7 percent against the dollar to trade at $1.6409 GBP=D4. That compared with a 10-month low of $1.6051 struck last week. It also gained to 78.53 pence per euro EURGBP=D4, its strongest in two years.
Out of 12 Scotland-based stocks in the FTSE 350 .FTLC, only two closed down.
UK government bond yields rose, as traders backed a “No” vote they saw as clearing the way for the Bank of England to raise interest rates before parliamentary elections next May.
Short sterling future contracts <0#FSS:> dated from the middle of next year fell, implying expectations of a higher rates over that period.
Analysts said much market chatter in the past two days had also surrounded the short odds given by UK bookmakers on a “No” vote. One of the main online betting platforms, Betfair, has already paid out on a vote against independence.
“Despite the opinions poll being very close, there is a lot of focus on the fact that the analysis done by the bookmakers is much more suggestive of a ‘No’ vote. The market is taking comfort from that,” said Rabobank’s senior FX strategist Jane Foley.
Betfair were offering odds of 4 to 1 for a Scots “Yes” on Thursday, versus 1 to 6 for a “No”.
Worries that Scotland’s departure from the 300-year old union with England would bolster other separatist movements have hit government bond markets in Spain, where Catalonia has similar demands to the Scots.
Spanish 10-year yields ES10YT=TWEB, which fall when prices rise, were down 3 basis points at 2.27 percent, on a day when most other euro zone bond yields traded 3-5 basis points higher.
Back in the currency market, options contracts which allow traders to hedge against sharp swings in overnight changes in the value of currencies had soared to as much as 35 percent early on Thursday. GBPONO=R
By mid-afternoon in London, they had fallen back to 25 percent, still higher than Wednesday’s 12.75 percent, given the lingering risk that the “Yes” camp could still win.
A number of major Scottish-linked companies have suffered from the speculation of a split, worried by the operational costs as well as uncertainty over investment and the future shape of regulation and government in the new state.
Securequity sales trader Jawaid Afsar said he had bought shares in power-generation company Aggreko (AGGK.L), which is headquartered in Glasgow.
Aggreko was up 0.5 percent while major Scottish financial institutions such as Royal Bank of Scotland (RBS.L) and Aberdeen Asset Management ADN.L fared better, rising by 1.3 and 2 percent respectively.
Cavendish Asset Management fund manager Paul Mumford said he had used the earlier pullback to buy up shares on the cheap.
He said he had added to holdings in Scotland-headquartered distribution group John Menzies (MNZS.L) and North Sea oil-focused groups Hurricane Energy (HUR.L) and Ithaca Energy IAE.L IAE.TO, which while not on the FTSE 350 index are part of the broader London stock market.
Additional reporting by John Geddie and Marius Zaharia; writing by Patrick Graham; editing by John Stonestreet, Larry King