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LONDON (Alliance News) - Major UK stock indices are fluctuating between gains and losses Tuesday, as investors chew over to implications of a second poll that indicates Scottish voters are becoming increasingly likely to vote for a split from the rest of the UK in the September 18 independence referendum.
The pound remains at lower levels following Monday's heavy sell-off. As well as the weight of uncertainty surrounding the Scottish vote, latest data from the Office for National Statistics have shown the UK trade deficit continued to widen in July, although industrial production accelerated a little faster than expected.
Having opened lower before pushing into positive territory, by mid-morning Tuesday the FTSE 100 is down 0.2% at 6,819.82, the FTSE 250 is down 0.3% at 15,723.96, and the AIM All-Share is fractionally higher at 776.32.
Major European markets also are a little soft, with the French CAC 40 and the German DAX both just 0.1% lower.
The UK trade deficit unexpectedly widened in July to GBP10.2 billion from GBP9.4 billion in June, coming as a disappointment to economists who had predicted the deficit to narrow slightly to GBP9.1 billion. The data represents the fifth consecutive monthly deficit expansion, and the widest deficit since April 2012.
The data backs up the concerns voiced by a string of companies in recent months that the strength of the pound this year has been hurting their foreign sales. That concern may be fast abating, however, given that the pound has slipped more that 6% against the dollar over the last two months as traders pushed back UK interest rate rise expectations, and more recently showed concern over a potential vote for an independent Scotland.
Following Sunday's YouGov poll, which showed the "Yes" vote with a slight lead, a poll from TNS Tuesday has shown the "Yes" and "No" campaigns each have 41% of the voters who have made up their minds, suggesting momentum is building in the "Yes" camp right at the crucial time, just 9 days before the vote.
UK industrial production expanded by 0.5% month-on-month in July, up from 0.3% growth in June, and exceeding expectations for a dip in growth to 0.2%, according to ONS numbers released along with the trade data. Meanwhile manufacturing production increased by 0.3% month-on-month in July, retaining a steady growth rate from June, in line with expectations.
Analysts highlight that the data is important as it is the first insight into UK output activity in the third quarter, while some also warn that the effect of the tensions in eastern Ukraine may be yet to come.
"Growth should slow in the next couple of months as the effect of fighting in Ukraine on core-Eurozone business confidence feeds through to the UK," says Berenberg chief UK economist Rob Wood
In the UK equity market, the oil and gas producers are underperforming, as the price of Brent crude has dropped below USD100 per barrel this week for the first time in almost a year and a half. The FTSE 350 oil and gas producers sector is down 1.2%. BP has continued to receive negative updates in the wake of the recent US court ruling against it. Moody's has cut its outlook on BP to Negative Tuesday, while Societe Generale has cut its price target for the stock to 530p from 550p. BP shares are currently quoted at 463.66p.
Scottish power supplier SSE is continuing to fall, down another 1.1% Tuesday after shedding 2.3% on Monday amid concerns of a Scotland split.
Royal Bank of Scotland and Lloyds Banking Group, however, are seeing something of a rebound from Monday's poll-related sell-off. The two part-state-owned banks are up 0.7% and 1.5%, respectively.
Morrison Supermarkets leads the FTSE 100 gainers, up 2.9% following an upgrade to Buy from Neutral by analysts at Citigroup.
Petra Diamonds has jumped 5.7% to the top of the FTSE 250 after the company said it had recovered an "exceptional" 232.08 carat white diamond at its Cullinan mine in South Africa, the third exceptional find at the mine this year.
Still to come Tuesday, Bank of England Governor Mark Carney will be speaking from the Trades Union Congress in Liverpool at 1145 BST. Carney is expected to address the UK's sluggish UK wage growth, and investors will be listening for any insight into the timing of the first UK interest rate rise.
An estimate of UK GDP in the three months to August will be released at 1500 BST by the National Institute of Economic and Social Research. In the three months to July the NIESR estimated the UK economy grew by 0.6%.
Attention will switch to the US later in the session, with Apple are holding an event in California at which it is widely expected to unveil the latest iPhone model, along with a wearable product.
Futures markets currently indicate that a slightly softer open can be expected on Wall Street, with the DJIA and S&P 500 both pointing 0.1% lower.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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