UK Supreme Court Requires May To Submit Bill On Brexit To Westminster Parliament

As widely expected, the UK Supreme Court ruled that Parliament approval is needed to trigger Article 50 start the divorce proceedings with the EU. The Court decided by an 8-3 majority that a bill needs to be submitted to both chambers, but that the approval of the regional assemblies (e.g. Scotland, Northern Ireland) is not necessary.  

A bill is more onerous than a motion in that not only are both chambers involved, but amendments can be added that further condition.  This appears to be Labour’s strategy; not to oppose the triggering of Brexit, but ensure a larger role for parliament to ensure it is integral in the process. Two elements that could work in favor of the government is the fact that it was not a unanimous decision and that the regional assemblies have not a role.  The former had been anticipated, though some reports suggested a 7-4 decision.  The latter had greater potential to disrupt May’s timetable given the recent collapse of the Northern Irish assembly.   

The issue now becomes parliamentary in nature in the sense that the government will craft a bill to minimize the scope for amendments, and which amendments are discussed and for how long.  The Tories have a small majority in the House of Commons, and the challenge will be for an amendment to find sufficient support. Initially, at least, the Supreme Court ruling ought not to push back May’s end of a Q1 target for triggering Article 50.  

Sterling fell from a little above $1.2500 to a little below $1.2440 on the news and recovered quickly. The low met the 38.2% retracement objective of the rally from the pre-weekend low, leaving our constructive outlook intact. Recall yesterday that sterling rallied from around $1.2380 to almost $1.2540. Important chart support is seen in the $1.2400-$1.2415 area, and a break of it would undermine our outlook.  

Turning to the eurozone, the flash January PMI was reported. The composite reading of 54.3, down ever so slightly from the 54.4 December reading is consistent with continued steady growth. Two details, in particular, were notable. Employment is at its best level in nine years, and forward-looking new orders also rose.  Also, there were some signs of pricing power from suppliers, which likely reflects the rise in commodity prices. Import prices may also have been lifted by the euro’s depreciation.