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Scottish "No" Vote Pushes S&P To New Record High; Cable, Yen Roundtrip On Quad-Witching Alibaba Day

So much for any Scottish referendum vote "surprise": the people came, they voted, and they decided to stay in the 307-year-old union by a far wider margin, some 55% to 45%, than most polls had forecast, even as 3.6 million votes, a record 85% turnout, expressed their opinion. The gloating began shortly thereafter, first and foremost by David Cameron who said "There can be no disputes, no re-runs, we have heard the settled will of the Scottish people." Queen Elizabeth II, who is at her Scottish castle in Balmoral, is expected to make a rare comment on Friday.

The loser was graceful: speaking in front of an image of a giant white on blue Scottish flag, nationalist leader Alex Salmond conceded defeat in Edinburgh. Salmond laced his admission of defeat with a warning to British politicians in London that they must respect their last minute promise of more powers for Scotland. "Scotland has by a majority decided not, at this stage, to become an independent country. I accept that verdict of the people and I call on all of Scotland to follow suit in accepting the democratic verdict of the people of Scotland," Salmond said.

Despite its loss, the Yes movement will be seen as a victory for the Scots. From Reuters:

Opinion polls showing a surge in Scottish separatist support in the two weeks leading up to the Sept. 18 vote prompted a rushed British pledge to grant more powers to Scotland, a step that has angered some English lawmakers in Westminster.


In an effort to deflate that anger, Cameron vowed to forge a new constitutional settlement that would grant Scotland the promised powers but also give greater control to England, Wales and Northern Ireland.


"Just as Scotland will vote separately in the Scottish parliament on their issues of tax, spending and welfare, so too England, as well as Wales and Northern Ireland should be able to vote on these issues," Cameron said.


"All this must take place, in tandem with and at the same pace as the settlement for Scotland."


Cast as a constitutional revolution, commentators said Cameron's pledge of more powers to the constituent parts of the United Kingdom was aimed at sedating 'the slumbering beast of English nationalism'.

Still, tonight's referendum is hardly the end of the question of Scottish independence:

While Scottish leaders promised to work together, Scots remained divided in joy and disappointment over the fate of their country. "Absolutely amazing," said unionist campaigner Stephen Stanners. "They shouted the loudest, so it made it seem like a majority. But we’re obviously the silent dignified majority. And we pushed it through. And it just shows that Scotland loves the UK and the UK loves Scotland."


But Calum Martin, a 21 year-old history student at Edinburgh University who voted for independence said the question of secession would return. "It’s a disappointing result but it sets the stage for going forward," Martin said. "As long as there are flaws, there will be calls for independence. You can’t put the genie back in the bottle once it’s out."

But while a No vote was where the smart betting money was ahead of the vote anyway, and is thus hardly a surprise, the most curious thing overnight was the complete roundtrip of cable, which was bought on the rumor and then sold off on the news, roundtripping by nearly 200 pips:


Perhaps even more surprising was the roundtrip in the USDJPY which also, like cable soared on the BOJ reduction in its assessment of the Japanese economy, only to retrace all gains.


In fact, the only thing that has not roundtripped are US equity futures, which however will be driven far more by the imminent break for trading of what several days ago we we dubbed the most important event of the week, far more relevant to "markets" than the Fed or the Scottish vote - the $168 billion BABA IPO, expected some time around 11 am, or possibly earlier if the underwriters want to start spending their commission early ahead of the weekend.

Finally, it is quad witching day, so watch those option pins. With volume already abysmally low, it literally takes oddlots to move the E-mini.

In summary, European shares rise, though are off earlier highs, with the real estate and telco sectors outperforming and tech, basic resources underperforming. Scotland rejected independence in referendum. The Spanish and German markets are the best-performing larger bourses, French the worst. The euro is weaker against the dollar. Spanish 10yr bond yields fall; Irish yields decline. Commodities little changed, with wheat, soybeans underperforming and Brent crude outperforming. U.S. leading index due later.

Market Wrap

  • S&P 500 futures up 0.3% to 2011.5
  • Stoxx 600 up 0.7% to 350.1
  • US 10Yr yield up 2bps to 2.63%
  • German 10Yr yield up 1bps to 1.09%
  • MSCI Asia Pacific up 0.4% to 144.6
  • Gold spot down 0.3% to $1222.1/oz

Bulletin headline summary from Bloomberg and RanSquawk

  • The United Kingdom’s political unity is retained, as Scotland votes against independence by a 10ppt margin 
  • Nikkei 225 erases 2014’s losses and strikes a seven-year high as BoJ’s Kuroda gives the greenlight for further JPY weakness
  • US equities set for a volatile end to the week, with Quadruple Witching and Alibaba’s USD 168bln IPO due today
  • Treasuries decline for a third consecutive week as Scotland rejects independence, FOMC shifts median fed funds target expectation; 2Y and 5Y yields are trading at highest levels since May 2011. * 55% of Scottish voters supported “no” vs 45% for “yes’; Prime Minister Cameron pledged to give English lawmakers a greater say on English legislation as enhanced powers for the Scottish Parliament will be matched by cutting the influence of Scottish lawmakers sitting in the House of Commons in London
  • G-20 finance ministers and central bankers, meeting this weekend in Australia, will share plans to boost GDP by 2% over five years, an official said, citing the draft communique
  • G-20 delegates see the global growth outlook as less positive than early this year, he said
  • As U.S. fighter jets bomb Islamic State strongholds in Iraq, and Australian police officers arrest men intent on capturing and beheading innocents, intelligence agencies  are focusing on a more opaque threat: The quiet, shadowy men and women who aren’t seen tweeting from Syria
  • France carried out its first airstrikes on Islamic State targets in Iraq today, the French President’s office said in an email; airstrikes hit an Islamic State logistics depot in northeastern Iraq
  • When Obama meets Xi Jinping in Beijing in November he may want to steer clear of a line that has become a favorite of the Chinese president: ‘‘new model of great power relations”
  • By avoiding this slogan, U.S. is signaling its reluctance to accept a world that sees China increasing its influence while weakening that of the U.S. and its allies in Asia
  • Sovereign yields mostly higher. Asian, European stocks rise, U.S. equity-index futures gain. WTI crude, gold and copper fall

US Event Calendar

  • 10:00am: Index of Leading Economic Indicators, Aug., est. 0.4% (prior 0.9%)


JGBs trade down 10 ticks at 145.28 in tandem with weakness in USTs following the surge higher in USD/JPY and as the BoJ did not offer to buy government debt in the belly of the curve as expected. The JPY’s weakness has been compounded by BoJ’s Kuroda, who indicated the BoJ see no problem with the current FX moves. The Nikkei 225 (+1.6%) has consequently erased all of its YTD losses and trades at its highest level since 2007.


Bund and Gilt futures gapped lower at the open, as the worst case scenario of a political splinter of the UK was avoided, resulting in a much firmer European equity futures open after T-notes underperformed overnight. The SP/GE 10yr yield spread tightening markedly this morning, as markets clearly see Scotland’s bid to retain United Kingdom membership as a significant headwind to the Catalan President Artur Mas’ independence campaign.


The renewed certainty of the UK has allowed European equities to surge higher this morning with Scottish exposed companies RBS, Lloyds Banking Group and SSE all trading with gains as much as 3.5%. A further beneficiary of the Scottish ‘No’ vote has been Spanish equities as the failure of Salmond’s separatist have taken the wind out of the sails of Catalans independence campaign. Nonetheless, the FTSE 100’s upside has been tempered by weaker mining stocks as China’s Dalian Iron Ore prices fell over 3% as the weak demand in Asia and the ongoing build in stockpile pushed prices to contract lows.


Overnight, USD/JPY traded at the highest level since 2008 as the policy divergence play between Japan and the US pushed the pair towards 109.50, as such the Nikkei 225 hit its highest levels since 2007 as exporting stocks benefitted from JPY weakness. Ahead of the US open, GBP has come of the sessions best levels on mild profit taking however, GBP/USD still trades with gains just shy of 200 pips since Tuesday’s lows.


WTI and Brent crude futures trade softer, as the distinct lack of Chinese demand continues to cement the bearish case for commodities. On that topic, analysts at Bank of America see little in the way of upside for Brent, as the deep contango in the Brent futures curve limits any upside. Similar sentiment hit Dalian iron ore futures prices overnight, which fell over 3% to hit contract lows. China’s poor housing price index data overnight highlighted the threat to the government’s H2 growth target, as construction and housing demand slows.

* * *

DB's Jim Reid concludes the summary recap

So it looks like the 307-year union is safe for now. As of 5.25am, 26 out of 32 districts have declared their results with the count showing around 54 percent of people voting against independence. Sky News in the UK have just called the vote in favour of the Better Together campaign with the BBC following suit and suggesting the final result will be 55%/45% in favour of the NOs. Glasgow has just voted ‘Yes’ but it’s not seen as likely to be enough to influence the overall results. Edinburgh will probably be out by the time this arrives in your mailboxes but both sides are broadly accepting the likely outcome. As we felt might happen the NO victory is slightly higher than that seen in recent opinion polls but the results are still split enough for this story to have some oxygen over the coming months/years. However, for now it will be a slow burner rather than an immediate constitutional and economic crisis hotspot.

Sterling is rallying strongly overnight as a result. The Pound now trades at around 1.6493 against the Dollar versus around 1.626 about 24 hours ago. Generally risk markets are also responding favourably overnight with Asian equity markets generally trading in positive territory. The Nikkei (+1.4%) is still leading the way helped by further weakness in the Yen as the currency traded past 109 for the first time since 2008. The Nikkei is also poised to reverse YTD losses with the overnight performance. S&P 500 Futures are also up +0.3%. Asian credit remains largely in consolidation mode but with the firmer risk tone helping push spreads generally 1-2bp tighter.

In reality Asian markets also had a boost from the positive US lead yesterday with the S&P 500 (+0.49%) and the Dow (+0.64%) both making new closing highs despite a mixed set of data. The latest initial jobless claims fell 36k to 280k. This also had the effect or driving the 4 week moving average lower by 4k to 300k. Continuing claims also fell considerably. Housing data was weaker though with starts (956k v 1037k) and permits (998k v 1040k) both surprising to the downside. The Philly Fed headline (22.5 v 23.0) fell short of consensus although the underlying details such as shipments, new orders and employment were supportive. Away from equities, US credit also had a firm day yesterday which saw both IG and HY spreads generally tighter on the day.

Whilst on HY the data just in shows that it was another negative week of flows for the asset class with outflows of US$2.19bn in US HY funds representing to 0.76% equivalents of AUM. This marks the third consecutive week of outflows for US HY following the US$1.3bn in outflows the week prior to this. We also saw similar trends in Europe with Western European HY funds experiencing outflows of US$207m in the latest week (-0.53% of AUM). This also comes after the outflows of nearly US$290m in the prior week to this. The scale of outflows over the last 3 weeks are still nothing comparable to what we saw in July/early August but there seems to be some momentum building again so this will remain a key indicator to watch in the coming weeks in light of what some are seeing as a less dovish than expected Yellen at the latest meeting. HY is starting to look relatively cheap to IG so something might have to give at some point soon.

There were a few interesting stories in Europe yesterday but the low take-up for the first TLTRO was perhaps one of the main headlines. European banks only borrowed EUR82.6bn which is significantly lower than market expectations of around EUR400bn. UniCredit was one of the largest recipients taking up EUR7.7bn whilst Spain’s five largest banks took up an aggregate of EUR14.75bn. The next TLTRO takes place in December with four planned for 2015 and 2 more in 2016 but the low take seemed to raise hopes of even more drastic initiatives from the ECB such as outright QE. So bad news was good news for Europe yesterday and equities/credit rallied soon after the numbers were released.

After a busy couple of days we are looking to finish the week on a quieter note. Leading indicators in the US and Germany’s PPI are pretty much the only notable releases for today.