'Sweet spot' for markets as GBP, USD to flourish on No vote

If Scotland had voted 'yes', then many were predicting this could have been the 'butterfly flapping its wings in the Amazon jungle' that led to the long-awaited crash in equity markets and rise in volatility that has been curiously absent over the course of this summer.

The converse is therefore now true; with this tremendous source of uncertainty removed, equity markets can resume their upward March, driven on by excess global liquidity- the US Federal Reserve may be turning off the taps, but the Bank of Japan is flooding the markets with money and the European Central Bank is moving inexorably toward quantitative easing.

Yesterday's lacklustre targeted longer-term refinancing operations uptake has shown the flaw in the ECB's strategy - banks may not voluntarily access TLTROs, especially if they don't envision end demand for loans from non-financial enterprises.

This attempt to raise the size of the ECB's balance sheet by 'passive' means will surely fail and eventually will be replaced by an 'active' policy, I.e. QE as we know it, a la Fed, Bank of England, BoJ.

I therefore now expect a full explosion of animal spirits across markets, with GBP and USD flourishing, as they would have done without the threat of mayhem inherent in the risk of a Scottish 'yes' vote. EUR and JPY are looking especially weak.

BoE Monetary Policy Committee members will be more relaxed and tighten their fingers on the rate rise trigger, mirroring the subtle move in sentiment shown by this week's new SEP from the Fed, with it's exiting new dot dispersion.

This is now a sweet spot for markets, especially given the backdrop of reduced Ukrainian tension.

Overnight, GBP hit a two-year high against the euro and at 06:31 GMT, was up 0.43% at 1.2743. GBPUSD had gone as high as 1.6525 overnight and was up 0.27% at 1.6440 at 08:31 GMT.