UK Exit May Be Delayed

Daily Analysis - 16/11/2016

Brexit May Be Postponed Two Years

The Pound surged after comments from a UK Supreme Court Judge on Tuesday suggested that any move to trigger Article 50 to leave the European Union would require the passage of legislation by Parliament. The government plans to appeal the decision in December, however, the decision puts a question mark above the proposed exit plan.

Sterling Soars After High Court Comments

During comments before an audience in Kuala Lampur, High Court Justice Lady Hale indicated that the government may be required to pass legislation if it wishes to proceed with leaving the European Union. Her remarks echo a recent ruling that stipulates that Prime Minister Theresa May must put the measures to a vote in the House of Commons before activating Article 50 to exit the EU. According to Hale, the requirement could potentially delay the activation of any “Brexit” by two years. This would completely ignore the referendum vote, rendering it non-binding on Parliament. Although there is already chatter that the government is preparing a bill to satisfy the requirements, the High Court is still scheduled to hear the government’s appeal in December. After climbing back above 1.2500 briefly, the GBPUSD pair is back on the retreat as “leave” optimism fades.

OPEC Making A Final Push Ahead of Vienna

Oil prices climbed over 5.00% on Tuesday after well-timed headlines from OPEC that informal talks would be held between the cartel and Russia this week in Doha. Besides that meeting, the OPEC Secretary General is planning to hold discussions with Iran, Venezuela, and Ecuador in a bid to secure a plan to reduce the existing supply overhang. Saudi Arabia will also be present in Doha, but despite the headlines, no deal has been arrived at yet, leading to suspicions that Tuesday’s move was a massive short-squeeze amid rising concerns that a deal will not be reached to limit oil production. Adding to the anxiety, is rapidly filling onshore storage with Europe already utilizing floating storage vessels and US crude stockpiles rising more than forecasted according to the American Petroleum Institute. Meanwhile, Brent futures are back on the retreat, trending back below $47.00 per barrel.

US Retail Experiences Dramatic Shift

Data reported on Tuesday by the US Census Bureau showed that retail sales in the United States rose by the fastest annualized pace since November of 2014 as the case for a December rate hike builds. Headline retail sales rose by 4.30% year over year, with the monthly figure climbing 0.80% ahead of the important holiday season. While a major factor behind the recent gains were rising gasoline prices following the post-Algeria crude oil rally, the more interesting development was the rapid shift towards online shopping. According to the figures, e-commerce retailers saw sales rise by nearly 13.00% while department store sales plunged by more than -7.00%. This highlights the growing trend of shopping move online as big box retailers and brick and mortar establishments see sales continually eroded. After climbing on Tuesday, S&P futures are pulling back modestly after reaching earlier session highs.

Euro Area GDP Matches Forecasts

In spite of lingering concerns about the outlook after yesterday’s stunning decline in German GDP growth, Euro Area gross domestic product managed to match expectations on both a quarterly and annualized basis. For the period, quarterly growth matched forecasts of 0.30% while annualized expansion remained at 1.60%. Drivers behind the stable GDP reading were mostly the smaller Euro Area countries whereas the larger constituents proved a drag on performance. The main concern looking ahead is how trade conditions will continue to evolve after exports from Germany fell during the third quarter. At present, GDP is expected to grow 1.70% during 2016 and 1.50% for fiscal 2017 as concerns about “Brexit” and global trade weigh on the outlook. While weaker versus the US dollar, the Euro is still managing to gain ground versus the Yen as anxiety about the Bank of Japan losing controls forces the Japanese currency lower.