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IndyRef2: Krankie Strikes Back

Slow burn in markets

The anticipation of a busy week ahead including the possible triggering of Article 50, a potential populist revolt in the Dutch national election and a likely US interest rate hike meant there was a slow burn in markets on Monday.


Galliford Try to merge with Bovis

Homebuilder shares were top risers on speculation a wave of M&A could be about to spread through the troubled sector. Bovis Homes has rejected a second merger proposition from Galliford Try, not long after rejecting rival Redrow. The rather paltry 7% premium proposed by Galliford Try is likely why it has failed for now but negotiations are ongoing. The deal would combine Britain’s 6th and 8th largest homebuilders. Redrow announced it is still interested is another reason bovis can expect a better premium.


Shares of Bovis jumped on hopes from investors that a merger could turnaround the company’s underperformer status that has kept the share price below pre-Brexit levels and lagging other homebuilders. Shares of the budding acquirers were also higher. These deals are being viewed as an appropriate defence against a slowing housing market and potential Brexit fallout. Separately data from estate agency Countrywide showed rents fell in February for the first time since 2010


We don’t see any regulatory opposition to the deal, though we do think it could conflict with the government’s plans for more housing. The cost synergies that motivate most mergers could mean more profit at the expense of less homes being built.


IndyRef2: Krankie Strikes Back

The Scottish National Party has thrown another spanner in the Brexit works with calls for another Scottish referendum. The British pound was higher on the day since the announcement was well telegraphed by Scottish First Minister Nicola Sturgeon. The pound has already fallen sharply since the first rumblings of another referendum began two weeks ago.


Polls consistently show a majority support for staying in the union and opposition to a second referendum. An Independent of Scotland is the raison d'être of the SNP so the political opportunism after Brexit makes sense. Future movements in Sterling may depend on Theresa May’s decision on whether to grant the referendum. The critical language so far from the government would suggest it won’t grant the referendum.


Another Scottish referendum during negotiations with the EU would clearly add another layer of complexity to Brexit, hence the sharp drop in the pound over the last two weeks. All else being equal, we would assume denying the Scots another referendum would be positive for the pound. However, politically a denial could end up being more destabilising if the SNP opted to have a non-binding Scotland-wide ‘consultative poll’ anyway. Being able to vent frustration without consequence would likely get a higher result for the populists.


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