Carney, the will of the people and the market

If you fancy a video preview of the week ahead of stocks, bonds, and the pound, I put together one on Sunday afternoon. You can watch it here on YouTube.

The short version is that Mark Carney from the Bank of England talked up the need for lower interest rates and more stimulus on Friday. UK Gilt yields fell (including the 2-year note joining the ‘negative yield’ club). The FTSE 100 — full of companies that earn money overseas and that could benefit from a weaker pound — continues to outperform the FTSE 250 (mostly mid-cap companies earning money in Britain).

And the pound? It fell after Carney’s comments. And in one sense, Carney was absolutely right now. The markets priced in ‘remain.’ They got it wrong. Now they are where they are. We still don’t know what the long-term result of the vote will be, partly because we don’t know if the vote will actually result in Britain leaving the UK.

You read that right

A London-based law firm has raised the subject of legal action that would require the Parliament vote to trigger Article 50 of the Lisbon Treaty covering Britain’s exit from the European Union. Of course there’s a chance that Parliament, representing the people but not being bound to their will, could decide not to leave.

A full discussion of the political and constitutional implications of Parliament contradicting the results of the referendum is beyond the scope of today’s post. I would say that the real virtue of representative democracy is that the majority doesn’t always rule. But it would be quite extraordinary if around 700 people decided to ignore what around 17 million voted for.

It doesn’t really matter who is running things. If the State does what’s best for the State, the people are going to lose.

Category: Central Banks