25/01/2017 - Government Loses Article 50 Case

GBP

Sterling fell and London's FTSE 100 index rose on Tuesday in a volatile response to a UK Supreme Court ruling that the government must go through parliament, but not its regional assemblies, to trigger talks on leaving the European Union. The pound hit 5-week highs after the first sections of the ruling were read, but was then hit by a wave of profit-taking by investors, fuelled in part by worries over how Irish and Scottish politicians and public will now proceed.

Scottish First Minister Nicola Sturgeon said she would bring a motion of consent to Edinburgh's devolved assembly despite the ruling that the government did not need to ask for its approval, or that of the Northern Irish equivalent.

Sterling drew support last year from the original ruling in London's High Court which was perceived to support the pro-EU forces in parliament who are demanding a "softer" Brexit that prioritises maintaining membership of the bloc's lucrative single market. However, many market participants said the decision on Tuesday had already been factored into sterling and that it cleared the way for Prime Minister Theresa May to proceed with a "hard" Brexit by seeking approval only from Westminster and not the pro-EU regions.

EUR

After the Supreme Court ruling the German media speculated that Britain's decision to leave the EU could be stopped entirely by Parliament. The head of the German Institute for Economic Research, Michael Huether, said there is a one-in-three chance that the decision will be reversed. Huether believes the political fallout from Brexit may become too much and the public and MPs may change their mind, and that could happen when they realise the decision is economically unaffordable, he said.

USD

President Donald Trump took steps to advance construction of the Keystone XL and Dakota Access pipelines, marking the start of an era with fewer constraints on the oil industry to the chagrin of environmentalists who have bitterly fought the projects.

The moves, among Trump’s first actions since taking office, are a major departure from the Obama administration, which rejected TransCanada Corp.’s Keystone proposal in 2015 and has kept Dakota Access blocked since September. Environmentalists, concerned about climate change and damage to waters, land and Native-American cultural sites, now face an executive branch that’s less sympathetic to their efforts.

For the oil industry, it heralds more freedom to expand infrastructure and ease transportation bottlenecks. Although this highlights Trumps commitment to increasing US productivity and US jobs, it also draws attention to his controversial approach to business and gives insight in to the nature of policies we may expect.

Key Announcements

09:00 – EUR – German IFO Business Climate; Forecast at 111.3 against a previous of 111.0

15:30 – USD – Crude Oil Inventories