Scotland’s referendum seems to overshadow this week’s key events.  Yet, for the most part, it is a binary event. Either Scotland votes to be independent of England and Wales or it doesn’t. An independent Scotland would be a surprise even though the polls show a statistical dead heat. It would send sterling reeling. The betting (as opposed to speculating) clearly favors Scotland choosing to remain in the union. This will likely shoot sterling higher, and keep the expectation for a Q1 15 BOE rate hike intact. Â
The two-day FOMC meeting that begins today is only slightly more nuanced.  The Federal Reserve will update its forecasts, and Yellen holds a press conference tomorrow. These pose some headline risks. However, the key really lies in the forward guidance. Does the FOMC continue to say that rates can remain low for “considerable time” after the end of QE or doesn’t it? Does it still characterize the labor market is significantly under-utilized?  Any change in the language will reinforce ideas that the Fed is moving toward its first rate hike. In her press conference, Yellen is likely to reinforce the message that the economic data will shape the timing, pace and magnitude of the normalization of monetary policy.Â
The ECB launch of its new facility (Targeted Long Term Repo Operation) is arguably more nuanced than the Scottish referendum or the FOMC meeting.  The issue here is the extent of the participation. The strength of the participation is expected to have knock-on effects on European bonds directly, and indirectly through shaping expectations for the asset-backed bond/covered bond purchase scheme whose details will be provided next month.Â
There are two phases of the TLTRO.  The first will be launched Thursday and will follow up in December. The amount that can be borrowed in this phase is a function of banks’ current loan book. In the second phase, which starts in March 2015 and will run through the middle of 2016, borrowing will be more a function of the change in the banks’ loan book.Â
