Scotland has voted against independence overnight in a move that has removed a great weight from the shoulders of sterling, but has longer running implications for the political make-up of the United Kingdom. At present, the vote looks likely to show a 55% vote against independence. Cable has moved back above the 1.65 level, although the recovery was already underway this week once the polls were shifting towards a rejection, but not in a way that was giving enough cause for comfort. The bigger reaction will be seen in the options market, where the skew between puts and calls had become the most extreme for over 4 years as investors feared a much stronger negative reaction to a ‘yes’ vote vs. positive reaction to a ‘no’. That said, we could well get some further follow-through buying of the currency in the coming day as overseas investors re-assess their allocations to the UK now that the uncertainty of the vote has lifted, especially into month end. The premium of gilts over German paper has already come in from the highs above 150bp seen earlier in the month. The underperformance of the FTSE vs. its peers should also be partially, if not wholly unwound.
Beyond the UK, scheduled data is on the light side for today, but FX markets are likely to continue to be lively into the end of the week. The momentum on the yen continues to be to the downside, USDJPY having moved further towards the 110 level overnight, with the 2008 high of 110.66 in sight. The Aussie is also retaining its move below the 90 level, whilst EURUSD has been more consolidative below the 1.30 level. Some focus on 3Y LTRO repayment announcement today and its implications for the ECB’s balance sheet going forward.