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Brexit: Traders like the postponement idea

Written by By JFD Research | 2019-03-13 12:26:27 GMT

Outlook:

Yesterday’s tepid CPI data is followed today by PPI, which tends not to feed CPI but contains a message about the price environment. It’s forecast to slip to 1.9% from 2.0%, in part on weaker numbers a year ago (the base effect). More important is import prices. Despite the strong dollar, import prices (ex-oil) probably fell too. We are all learning how to type disinflation again. To cap it all off, we also get Jan durable goods orders and construction spending, and those might look a little perkier.

With the Saudis contemplating an oil price war with the US and people starving in Venezuela, will anyone be looking at the oil inventory report later this morning? We are amazed this is not the top story today. It’s as though Vesuvius is rumbling but nobody is running away.

This afternoon (3 pm ET), the UK Parliament holds a really stupid vote on whether to leave the EU without a plan. Tomorrow it votes on postponement and under what terms, with the expectation that the EC will sit back and let them wreck the living room furniture. The EC has to agree to an extension and surely its patience is wearing thin. There is a whisper that the legal opinion might get changed to a positive one, implying May is not utterly incompetent, but this doesn’t pass the “So What?” test although it might propel sterling briefly.

Traders like the postponement idea, hence the sterling rally, with saner heads occasionally popping up to vote against the pound because a postponement can only be to May 23, just ahead of the EU Parliamentary elections. The UK can’t be part of that but would have to be allowed to be part of it under EU rules. So we have to ask what can be accomplished in two months that couldn’t be done in two years?

Commentators offer suggestions about what else the UK can do. We doubt all of them because the UK political apparatus has demonstrated fully it can’t get anything done, but here goes anyway: first, vote Brexit down. There is a tricky legal argument that the referendum was held illegally or improperly and can be discarded, perhaps to be held again. We’re not going there and we doubt the UK government will, either. A new referendum might be an idea, but polls show that if it’s posed the same way as before, on Tuesday the voters will go for stay and on Wednesday they would go for exit. A three-part referendum is a non-starter. A third idea is for Parliament to devise its own plan, but that would be a camel—a horse designed by a committee. And don’t forget the EU has to agree to whatever the Brits come up with.

Personally we would like to see Parliament revoke Article 50 and start a proper referendum process with an uncontaminated series of debates to get an educated public. An uneducated public swayed by lies and other political crap is how the UK got here in the first place. It was a corruption of the democratic process and the core problem all along. The MP’s are just reflecting what they think their constituents want but their constituents are still relatively clueless. May has demonstrated she has guts. This form of extension would take guts… We should not be asking “What would Winston do?” We should be asking how to educate a fuzzy-minded public and get values properly prioritized. 

In any case, sterling is going to whipsaw wildly. It’s wild rise is not over, either. But don’t count on your stops getting hit properly. Losses can be vast and somebody is going out of business over this.

 


This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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