By Giles Wilkes, normally found at Lex or writing leaders.
So on Wednesday 23rd March, three month implied volatility for the proud pound was 14.5 per cent, which is up a third from 11 per cent the day before.
For an options market maker, such a move in ‘vol’ is a pretty big deal: expected volatility in a market is the major factor driving prices, and being caught the wrong way on such a move would be enough to cause a fairly large loss. But that is not what happened.
The reason for the change in three month vol was rather more mundane. Read more
After reading John McDermott (formerly of these pixels) on the latest independence vote poll numbers and why he reserves the right to panic…
Take a moment to reflect on this late (potential) addition to the No-vote campaign, via Citi’s Jonathan Stubbs:
The history of the union has been kind to UK equity investors. Since the Acts of Union were passed by the Parliament of England (1706) and Parliament of Scotland (1707), UK equities have returned c12,700,000,000% (Figure 1) with a slightly less impressive annualised return of 6.3%. Our back-test concludes that equity investors have been well served by the Union, to date.
This guest post on the issue of Scottish independence is from Paul Donovan, Global Economist at UBS in London…
As the referendum on Scottish independence approaches, the rhetoric around the currency arrangements for an independent Scotland has escalated. An unnamed British cabinet minister has been cited as suggesting that currency union could be used as a bargaining chip (specifically in exchange for Trident bases). The casual assumption that a fundamental economic structure can be bargained for political capital is deeply troubling; it is just such approach that created the Euro with the flawed architecture that it has today. Read more
We thought there was a solid tradition in Ireland: first referendum is a No, the second is a Yes. It seemed so simple. But the Irish government has gone and smashed that venerable tradition by saying, if the people vote No, it won’t be putting this issue to a referendum again… incontrovertibly.
Worrying. Read more
The announcement of an Irish referendum on the European Stability Treaty put the euro cross-rate into a brief tizz on Tuesday. The reason, as the FT explains:
A no vote would mean Ireland was not eligible for funds from the European Stability Mechanism, the eurozone’s new bail-out fund. The pact can enter force with the support of 12 of the 17 countries that use the euro, effectively removing any single nation’s veto over the accord.
*IRELAND TO HOLD VOTE ON EU FISCAL COMPACT, KENNY SAYS
Market seems not to like this… though wasn’t referendum or renegotiation risk always inherent in the treaty? (Cf. Monsieur Hollande.) Read more
Greek Deputy PM Evangelos Venizelos’
bombshell statement upon arrival from Cannes on Thursday morning: Read more
George Papandreou, Greece’s prime minister, has won the backing for a referendum on the second bail-out package for his heavily indebted country after a gruelling cabinet meeting, the FT reports. The Greek cabinet met for seven hours before giving the Greek prime minister approval to hold the vote on a yet to be determined date. “The referendum will be a clear mandate and a clear message in and outside Greece on our European course and participation in the euro,” Mr Papandreou told the meeting, according to a statement released by his office. The prime minister is preparing to fly to Cannes to meet Angela Merkel, Germany’s chancellor, and Nicolas Sarkozy, France’s president, who summoned Mr Papandreou for emergency talks with Christine Lagarde, managing director of the International Monetary Fund, and the heads of the leading European institutions, following his shock decision to hold a referendum on Monday. The announcement spread panic in financial markets on Tuesday and raised fears that it could result in a disorderly default by Athens. In a joint communiqué, the French and German leaders said they were “determined to ensure the implementation without delay of the decisions adopted at the eurozone summit”, saying they were “more necessary than ever today”.