David Cameron staked his political career on the UK referendum and lost. Unfortunately, this hasn’t been the only consequence of his ill-fated confidence that the UK would vote ‘remain’.
One such consequence of Cameron’s miscalculation was that very little thought was actually given to how the UK would follow through with a divorce from Europe.
Today’s High court decision that an act of parliament needs to be in place before the government can trigger Article 50 (i.e. starting of the UK’s irrevocable divorce proceedings) is simply the latest chapter in this sorry state of affairs.
The ruling, will of course be challenged by Theresa May and her government at the Supreme Court. Yet more uncertainty…
Whether the Supreme Court will appeal the High Court’s decision aside, investors still have plenty to consider. Today’s ruling throws up several questions, chiefly: could this lead to MP’s blocking Brexit by the back door? Will it result in a delay of triggering Article 50? How does this impact the chance of a hard-Brexit?
With this in mind, let’s review how markets have reacted in an effort to try and better understand the implications of today’s ruling.
Sterling Rallies
Immediately after the ruling we saw sterling rally.
USD/GBP 15 Minute Candle Chart
Of course, the magnitude of the pound's rally today is dwarfed (in absolute terms) by the selloff we witnessed after the UK referendum. Moreover, we are a long way off sterling erasing September’s weakening as investors began to price in an increased chance of a hard-Brexit.
Note, today’s second leg higher corresponds with the Bank of England’s decision to keep interest rates unchanged and increasing its forecasts for economic growth and inflation over the next three years.
Impact Elsewhere
Of course sterling sensitive stocks moved on the news, but reverberations from the ruling were more wide-ranging.
The Real Estate Investment Trust sector was hit particularly hard following the UK referendum as investors feared overseas property demand would dry up. With concerns regarding a hard Brexit pushing the sector lower over the last couple of months we also saw the sector rally this morning.
FTSE 350 Real Estate Investment Trust Sector Hourly Candle Chart
As was the case with sterling, the Real Estate Investment Trust sector’s rally paled into insignificance when compared (in absolute terms) to the selloff witnessed post-Brexit.
Brexit Driven Volatility Here to Stay
Before we get ahead of ourselves it is important to remember that today’s ruling should not be over interpreted. Only last week did the High Court in Northern Ireland rule differently on the same matter.
With the ruling always anticipated to be challenged at the Supreme Court, today’s verdict was never going to be the end. Likewise, today’s Brexit driven volatility looks set to be the new norm for many months to come.