Thursday bullet points

There's a lot going on today.   Here are a few thoughts on some of the salient bits:

* The UK court ruling.   It says something about the current state of the UK that the ruling that Parliament will be able to vote on a constitution-altering change is seen as good news by sterling.  One might have thought that that should be de rigeur.  Anyhow, the court's decision is not final, with the Government already announcing its intention to appeal to the Supreme Court.  There are a number of legal and constitutional complexities that ensue, most of which suggest that the PM's Q1 deadline for triggering Article 50 is highly unlikely.   A useful summary of the state of play can be found here.

When all is said and done, it does seem likely that Parliament will go ahead and vote for Brexit, obviously perhaps subject to some amendments to the Government's preferences.   There is actually an interesting political philosophy issue at play here, because a healthy number of Remain-supporting MPs represent Leave-supporting constituencies.   Are these MPs representatives, there to vote along the the preferences of the people they represent, or are they trustees, elected to do as they see fit because the populace does have the time or expertise to opine on a wide range of issues?   Even if the relationship is ordinarily the latter, it seems likely that when it comes to Brexit the former will be in play.

Interestingly, midcap equities loved the court ruling, though that appears to be more of a knee jerk reaction (given that the MCX swooned on the initial vote.)  Uncertainty seems likely to be extended, if anything, as a result of the decision.

* The BOE rows back.    We all knew that Mark Carney is the height of central banking cool, but Macro Man didn't realize until today that he is the living embodiment of the Fonz.



The inflation and growth profiles were raised sufficiently to merit the elimination of any easing bias to policy, along with the inclusion of a salutary warning that there are limits to the Old Lady's toleration for higher inflation.  When pressed to explain the volatility of their forecasts, Messrs. Carney and Broadbent sounded suspiciously like Arthur Fonzarelli in the clip above.   Meanwhile, sterling seems a reasonable candidate for a short covering rally from here, perhaps up to 1.28 or so.

*Oil.   Q:  What's even more volatile than BOE forecasts?  A: Oil inventories.   A few weeks after oil stocks registered their second largest decline on record, they delivered the biggest build on record yesterday.  You don't need Macro Man to tell you what this meant and likely means moving forwards; it certainly feels as if the narrative tide is tilting back towards favouring a look at the downside.

 *  It's nice to see a hedge work.    It wasn't the sexiest recommendation ever, but it's still nice to see the VIX butterfly mentioned a couple of weeks ago work exactly as intended, for exactly the reasons intended.

  * Payrolls.  Payrolls tomorrow, and while yesterday's Fed statement left the door firmly ajar to do nothing, there was enough shift in the language to suggest we're on course for a rate hike unless something goes badly awry.  Macro Man's model forecasts a rise of 162k, which is clearly insufficient to qualify for "badly awry".

Indeed, per Monday's post it seems likely that politics will trump economics (pardon the pun) when it comes to determining the outcome of December's Fed meeting.   While a risk asset sell-off courtesy of a Trump victory is the most obvious risk, it's hard to see the market welcoming an indictment of a freshly-elected Clinton, either.  Frankly, this election season has been so bizarre that it's kind of hard to rule anything out at this point...which is why the Fed is keeping their options open.