Eq: Dev ex-US
We have stayed away from covering too much of the in-fighting currently going on in Britain over Brexit and how to proceed in negotiating with the EU. However, something potentially very troubling came out this weekend that could weigh on global markets—there may be another Scottish referendum in the near future. Scotland has been furious over Britain wanting to leave the EU (Scotland is heavily pro-EU), and it has complained that London has not listened to its questions and concerns about Brexit. Therefore, the country is mulling over planning a new referendum on UK membership, and UK PM May has reportedly said it was okay so long as it occurred after the UK leaves the EU.
FINSUM: British political logic is confounding to outsiders, so it is hard to say how this may play out. However, we suspect Scotland will not want to wait until after the UK leaves the EU to have its referendum.
Keen Europe watchers will remember that a few months ago the UK’s Supreme Court ruled that parliament would need to vote to trigger a Brexit from the EU. However, the most important ruling—the government’s appeal of the decision—was announced today, with the Supreme Court upholding the decision (8 to 3) that parliament must vote before Brexit can be started. Ironically, the vote made the Pound fall, as traders view it as no impediment to Brexit as parliament seems likely to vote in favor of it. The important part of the ruling was that the Court said Northern Irish and Scottish legislatures will not have a chance to vote on the measure, which clears PM May’s timeframe.
FINSUM: Brexit appears as though it will likely be triggered in March.
For those of you who might not have noticed—and one could easily be forgiven for it—Britain’s largest stock index, the FTSE 100, is about to mark its best run in 33 years. It is poised to gain 11 days in a row. On the surface this seems like a headscratcher considering all the bad news and gloom surrounding the country’s Brexit from the EU. However, stock investors there love the devaluation of Sterling, which boosts earnings and makes British goods more affordable for overseas buyers. Take AstraZeneca for instance, the company’s largest drug maker, which has seen its shares rise in 16 of the last 20 sessions.
FINSUM: This shows that a currency fall can overcome almost any obstacle in the minds of stock investors.
Source: Financial Times
In a stunningly lopsided result given pre-referendum polls, Italians voted resoundingly yesterday to reject the constitutional reforms put forth by Matteo Renzi. The vote went nearly 60% against the reforms, and subsequently Renzi has resigned from power. Markets, curiously, did not react strongly to the result, with the Euro initially dropping but then rising. The explanation for the muted response is that traders finally saw this populist event coming, with one commentator saying “After Brexit, it took three days for markets to shake it off, with Trump it took three hours, with Italy it took three minutes”.
FINSUM: Italian banks got hurt pretty bad, but outside of that things have been okay. The big question now is what happens next in Italy. Will we see that far right party grab power and call a referendum on the Euro?
The future of Europe’s banks are hanging on by the thinnest of threads right now. Rescue plans for Monte Dei Paschi, and the fate of the rest of Italy’s embattled banks seems to be entirely contingent on this weekend’s referendum (on Sunday). Worse yet, the whole continent’s banks could be undermined if the referendum goes against Renzi, as populism would be shown to be dominant in Europe. This would likely mean the status quo political system, which has kept the banks afloat, could be washed away by the rising tide of the far-right. The big banks to watch this weekend seem to be Monte Dei Paschi, UniCredit, Deutsche Bank, and Banco Popular Espanol.
FINSUM: If this vote goes the way of recent plebiscites, it is very hard to forecast where that will leave banks, and investors will likely hate that uncertainty.
Source: Wall Street Journal
In what comes as a very ironic potential twist of fate, the decision over how, if, and when to do Brexit could come down to the European Court of Justice. The UK Supreme Court has already ruled that Parliament will have to vote to enact Article 50, or the measure which officially starts Brexit, but a key facet to the enactment and following negotiations may need to be resolved by the European courts. That would be to determine whether Article 50 is revocable once enacted, meaning can Brexit actually be reversed. Numerous other aspects of Brexit may also have to be decided in European courts.
FINSUM: The fact that the UK will have to resort to European Courts on a number of matters regarding Brexit is almost macabre, but it also highlights how deeply intertwined the UK is with Europe and how messy it will be to disentangle the two.
Source: Financial Times