Givers of the Law

Pride of place for political news outside the US must go to the UK High Court’s decision that the infamous Article 50 clause by which Brexit is to be achieved cannot take place without being subject to Parliamentary approval.

Ironically, Lord Chief Justice Lord Thomas ruled that for Theresa May’s executive to do this under the aegis of Britain’s rather shadowy – and arguably outdated – concept of ‘royal prerogative’ would be to deny the Parliamentary sovereignty recognised in the 1972 European Communities Act whose removal of said sovereignty – and hence whose repeal – is the very aim of Brexit.

These pillars of the British judiciary and supposed defenders of the nation’s almost unique heritage of common law are of course themselves at the mercy of the Napoleonic panjandrums who preside in Brussels’ very own Star Chambers, the ECJ and the ECHR, a state of grovelling subjection to which My Noble Lords, too, were reduced by that same abject 1972 surrender.

Confused? Not as much as are the two factions – the Ins and the Outs –  who are back in the bunfight,each  hurling heated accusations of undemocratic behaviour, hypocrisy, and a lack of respect for the will of the people at the other in that unedifying display of sound and fury which passes for mature political debate these days.

Needless to say, we can already announce the winners, for it will be another field day for my learned legal friends who can look forward to another lucrative few weeks’ fee-gathering when the Government, inevitably, takes the matter to appeal.

The immediate upshot of the verdict was that sterling – further bolstered by a grudging climbdown on interest rates by the Bank of England – managed to breach $1.25 to the dollar on short-covering into the weekend though, to put that into perspective, this is still almost a big figure BELOW where last month’s ‘flash crash’, bear raid kicked in.

As for the BOE, the newly deified Governor – Divus Marcus Carney, the only man on the planet apparently capable of steering the people of his adopted home through the tribulations of Brexit – unashamedly sat through the presentation of an economic update filled with more than its usual quota of ‘greater than expecteds’ and ‘less than forecasts’.

In rescinding the intent to lower interest rates again, the Bank at last made some mealy-mouthed allowance for the fact that a fall in sterling in which they have been clearly instrumental is going to mean higher prices for all in the moths and years ahead.

‘The impact’, we were told, ‘will ultimately prove temporary’ so to ‘offset it fully’ – by re-raising rates and cancelling its latest QE programme – ‘would be excessively costly.’ Exculpation achieved. Letter to the Chancellor already in the drafts folder.

‘Temporary’, by the way, is an interesting word which translates to ‘some time – fingers crossed, touch wood – in 2020’, meaning that our beloved Mr Carney will not be there to see it happen, even after he completes his newly confirmed full term in office.

The decidedly non-venomous sting in the BOE’s tail was the weak proviso there were limits – wholly unspecified, of course –  to the extent to which ‘above-target inflation can be tolerated’.

Just how insubstantial those limits are can be seen from the fact that despite the Bank predicting that CPI will rise from today’s 1.0% to 2018’s suspiciously low-balled peak of 2.8%, short sterling futures over that term do not even price in a full reversal of last month’s ill-advised quarter-point rate cut!

Notwithstanding the ramifications of the Bank’s declaration, in general, it is largely matters of a non-economic nature which have taken centre stage in recent weeks – a case in point being that even the latest US employment report passed off with barely a ripple.

The day in question had started out on a sour note with the Nikkei suffering a 1.7% loss overnight and Europe trading softer, largely thanks to those perpetual stragglers, its tatterdemalion financials. Wall St. puffed up its chest, sucked in its cheeks and managed half a cheer by lunchtime, however, by erasing around half of the previous day’s losses

The payroll report itself was one of those Pick’n’Mix sets of numbers with just enough in it to support either side of the debate and firm enough to keep the December Fed meeting in play without making it a foregone conclusion.

An overall gain of 161,000 on the month (with upwards revisions to back months of a net 44,000) was the lowest addition since May’s shock outlier and was clearly below the last 6-years’ fairly stable average of 200,000 new hires a month.

One-nil to the Fed doves and market bulls.

On the other hand, wages were up a perky 2.8% – the fastest clip seen since the months after the Crash itself – and something which will add to those who harbour simmering inflationary fears.

One-all, as the Hawks & Bears quickly slot in the equalizer.

With the weekend fast approaching, it was more a case of squaring up the short-positions built up over several days of mounting anxiety than of accumulating further exposure.

As a result, bonds wobbled on the release but then rallied to the week’s best levels, with Gilts the star performers in the pack. Showing the lack of decisiveness in the investment world regarding actual economic prospects, Doctor Copper was at three month highs but, conversely, Chief Engineer Oil was at three month lows while that nervous market Actuary, gold, was unchanged at $1300/oz.

Behind the smiles, however, there are clear signs that nerves are fraying. The VIX ‘fear’ index is holding on to levels close to the top of the past four months’ range; currency vols and the MOVE index are also spiking higher from their recent torpor; while junk bonds – usually the first to lead both the charge and the retreat – have suffered a minor attack of the vapours in reversing, in just a few days, more than 50bps of the impressive 4% rally staged since February, with dedicated mutual funds in the sector suffering their largest outflows in the past two years.

As these last four are telling us, it would be wise to prepare for things to get very interesting indeed, next week.

So let’s all put our feet up, pour ourselves a glass of something dark and smoky, and tune in to that 24/7 stand-up comedy act which is the campaign to see who will be the American republic’s top – er, well – banana.