Morning Commentary: Unlawful

Foreign Exchange - Morning Commentary
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
UK PM Johnson suffered another setback overnight as the UK Supreme Court ruled, unanimously, that PM Johnson’s suspension of parliament was unlawful.  In what is an unprecedented legal rebuke, the high court found that the decision to suspend parliament prevented it from carrying out “…its constitutional functions.”  Further, the court ruled that parliament should convene as soon as possible, i.e. this Wednesday.   

Subsequently the GBP has found itself higher on the session as markets are interpreting this development as a further step to diminish PM Johnson’s authority and the risk of a no deal exit.  As such, the implied probability of a no deal exit in 2019 have fallen back down to their lows, raising the possibility that markets could be underpricing no deal risk.

While the court’s decision certainly is a defeat for the government, parliament’s return, in practical terms, most likely doesn’t change much.  Parliament has already passed a law requiring the PM to seek an extension by October 19 should a deal not be struck by then, leaving it with little to do in the interim. 

A key question that remains is whether or not PM Johnson will actually write an extension request, something he has reiterated that he has no intention to do.  Some possible paths to avoid an extension include, but aren’t limited to the following:
  • Striking a deal with the EU.
  • Using legal creativity to circumvent the Benn law.
  • Trying to get an EU member state to veto an extension.
  • Resigning and forcing Corbyn to write the extension letter. 

In the end, the court ruling does little to change the politics around Brexit.  However, one thing that will change is the resignation of the Speaker of the House after October 31.  As the Brexit process has taught us, the role of the Speaker is a crucial one, making the new Speaker an important factor moving forward.    
  • The US/China trade narrative continues to evolve in a positive manner.  The most recent development has China granting waivers to companies to buy between 2 to 3 million tons of US soybeans without being subject to retaliatory tariffs.  Additionally, China’s previously cancelled farm visit has been rescheduled. However, it is important to remember that many of the red line issues remain unresolved.
  • Trump will address the UN General Assembly today with Iran expected to be a key focus.  France, Germany and UK have also blamed Iran for the Saudi oil attack.
  • The German IFO Business Climate index came in mixed with the current climate beating expectations but future expectations missing consensus. 
  • The central bank of New Zealand announces its latest rate decision tonight and is expected to keep rates on hold as the central bank has laid out a more balanced view since its August rate cut.
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