Okay so I went and killed gnolls and orcs. I got this faction hit. +MerchantsofHighpass.
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I killed an orc and got another +MerchantsofHighpass
I checked the Merchants in highpass and highkeep. They are on MerchantsofHighpass faction.
I checked the highpass turn in quests associated with this. They gave +MerchantsofHighpass faction.
So... I dunno.