Submitted by Michael Every of RaboBank
The US yield curve continues to invert: the 3M-10Y Treasury spread is, thanks to a further decline in the latter, now at -5bp, and that was actually off the intra-day lows at the close. This is not a healthy sign, as bond-market watchers should know and equity-market obsessives should rapidly learn: how much further will this run before we see equity markets starting to do the same? Monday was perhaps the start of that action, at least in Asia, though Europe can take some comfort from the healthy German IFO report yesterday.
Talking of running, one purported US presidential candidate, former Stormy Daniels lawyer Michael Avenatti, almost certainly won’t be taking part now he has just been arrested for extortion. Expect that Not-Revolution to be televised today alongside further recriminations from the lack of criminals in the Mueller Report and calls for a report into how that Report got reported – and initiated.
Meanwhile, finally off and running in the eyes of some is the British Parliament, also televised, which has just provided us with what some are calling a revolution – though others, including myself, say it has not. In short, in a series of long, rambunctious debates The Mother of Parliaments voted to take control of the Brexit process from a government that is clearly falling apart. An amendment to allow Parliament to proceed with a series of indicative votes tomorrow over what kind of Brexit they would like, just four days before the original Brexit deadline and a few weeks before the new one of 12 April, was passed. In the eyes of Bremainers, the Remain-majority Parliament is now going to step in and sort this mess out.
Except for the fact the government have already made clear that they are not going to be bound by anything Parliament proposes, even staying in the Customs Union, for example. They see the British constitution as saying agreements like Brexit are made between the EU and the Executive, subject to approval by Parliament, which is not the same as Parliament becoming the Executive – which it really can’t from that stand-point.
This also presupposes that the government does not whip MPs into voting based on party lines. There are threats of more resignations if that happens following three junior ministers yesterday: but frankly, who is even keeping count at this stage?
It also presupposes all options will be on the table, when some such as a second referendum may not be. And can Parliament really agree on anything Brexit-ish anyway given the various options on the table, from Remain to Norway Plus to May’s thoroughly-unpopular deal, to Hard Brexit? One would wager there is no clear majority for anything, which is why we are in this mess in the first place.
Indeed, the BBC politics Brexit specialist agrees that where we are after last night’s Not-Revolution is merely closer to a General Election, which would be a hugely destabilising affair for both major parties given they are completely split on Brexit. Would the Tories be able to hold together to run on May’s Deal as their mandate? And what would Labour run on – a second referendum?! Given both an election and a referendum are forms of plebiscite, isn’t this just a never-endum to avoid facing up to the hard choices?
In short, the only manner in which what we have just seen is a revolution is that the UK is going round in circles: some would argue in a decaying orbit back into the EU; others would look how it has behaved of late and say circling round the drain. Good luck trading GBP through all this!
Day Ahead
Markets will today continue to grapple with a US yield curve that screams “Run!” and some signs of data that suggest a normal walking pace is still acceptable. They will also probably continue to ignore a political backdrop that says “Jump!”
It’s unlikely that the day will add anything much to our understanding of the present underlying dynamic given we already had Kiwi trade numbers, which saw exports up and imports down, and next up we only have US housing starts (consensus: -1.6%), building permits (consensus: -0.9%), and consumer confidence (consensus: 132.5).
There is some central-bank speak from Evans and Harper, but that isn’t going to address the real questions of where next either. Frankly, central banks are as in the dark as the rest of us as to whether a revolution looms ahead or not.
via ZeroHedge News https://ift.tt/2WoaniM Tyler Durden