It’s a pity for 45% of the Scots who voted for independence from the United Kingdom. For markets, all that counts is that the short-term event risk has disappeared; a victory for independence would have led to long-term political uncertainty. As we know, uncertainty can hamper confidence in markets and negatively influence the economy. Uncertainty about the future relationship of Scotland and the UK now seems out of the way.

## Asset class performances year-to-date

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## No change in policy by the Federal Reserve

The Federal Reserve reaffirmed its view that a highly accommodative monetary policy stance remains appropriate. In determining how long to maintain the current 0% to 0.25% target range for the federal funds rate, the Federal Reserve repeated that it will continue to assess progress toward its objectives of maximum employment and 2% inflation. This assessment will take into account a wide range of information such as measures of labour market conditions, indicators of inflationary pressures and inflation expectations.

The central bank continues to anticipate – based on its assessment of all relevant factors – that it is appropriate to maintain the current target range for the federal funds rate “for a considerable time” after the asset purchase program ends, especially if projected inflation continues to run below the Fed’s 2% longer-run goal, and provided that longer-term inflation expectations remain well anchored. Thus, the statement that rates may remain in the 0-0.25% range for a considerable time after the end of quantitative easing (QE) did not change. The buying program of sovereign bonds will stop at the end of October.

## The first period of broad-based negative returns

We recently witnessed the first period of broad-based negative returns across asset classes year-to-date, illustrating once more the strong impact of uncertainty on financial markets. So far 2014 had offered a couple of periods of volatility in risky assets, but government bond prices had resiliently continued to trend higher. A combination of nervousness over the direction of Fed policy, uncertainty surrounding the Scottish independence vote and disappointing growth news from China clearly seemed to have conspired to create these market moves.

## Reduced uncertainty, fundamentals still positive

With respect to the underlying fundamentals, the important point to stress is that the feedback loop from markets to the real economy remains a positive one. Interest rates and oil prices are still significantly lower than both 3 and 6 months ago (positive for cost of funding/living) and equity prices are firmly higher (creating positive wealth effects). On top of that, recent data releases do not give us reason to adapt our base case outlook of a re-acceleration in the global business cycle.