Today in Brexit, Day 1,187

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Today, the UK’s Supreme Court ruled that the Conservative Party can’t have its standard conference next week. Kidding! They actually ruled that Prime Minister Boris Johnson’s decision to close or “prorogue” Parliament for five weeks was “unlawful, void and of no effect,” and Commons Speaker John Bercow responded by recalling Members of Parliament (MPs) to work tomorrow. This is a bit awkward, as the Labour Party is holding its annual conference this week, and all the big guns were set to speak tomorrow. Johnson’s Conservatives are set to start their annual shindig on Sunday evening, but it will now be an abbreviated affair, with cabinet members flown in and out for their keynotes. Only the Liberal Democrats were able to enjoy uninterrupted pomp and circumstance. Yet for all the political spectacle of today’s ruling, it isn’t clear that it means much for Brexit.

There is a hint of irony to Bercow’s response to the court ruling. As we wrote back when Johnson first prorogued Parliament, MPs normally recess for three weeks or so in September and early October for the aforementioned party conferences. These annual gabfests are like mini versions of the US political parties’ quadrennial national conventions. In addition to being huge fundraising events, Labour and the Lib Dems use them to set party rules and platforms. Last week, the Lib Dems used their conference to make revoking Article 50—in other words, canceling Brexit outright—official party policy. Labour used its conference to set its official Brexit policy to negotiate a new deal, hold a referendum on said deal, and take a neutral position in said referendum. Returning MPs to work on Wednesday—while Labour’s conference was set to still be in session and the Conservatives’ is on deck—sends them to work on days they would have had off even if Johnson hadn’t prorogued. All proroguing amounted to was an extra week’s holiday after the end of the Conservative Party Conference. Now everyone must trudge back to work for an extra week and a half on top of that.

Some argue the extra time enables Parliament to do more with Brexit. Yet it isn’t clear there is anything for them to do. MPs already passed legislation requiring Johnson to request a three-month delay if there is no Brexit deal by October 19. That is two days after an EU summit at which Johnson hopes to secure a deal. Until that summit, there seems to be little for MPs to do related to Brexit. Crunch time was always going to be the short window between the summit and the 19^th. The prorogation was supposed to end on October 14, so MPs would have had their say after the summit regardless.

Arguably, the biggest question is now what happens to Johnson, who must now race home from the UN’s annual New York cabal. He isn’t talking like a man with plans to resign, though such things are always subject to change. Speculation is rife that Labour leader Jeremy Corbyn will call a no-confidence vote in Johnson’s government, though senior Labour MPs are reportedly divided on the matter. Some think it would be political suicide to let a prime minister whose actions the court deemed “unlawful” go unchallenged. Others think it would be a one-way ticket to a general election they fear Labour will lose badly. At his hastily rescheduled party conference speech, Corbyn was noncommittal and simply said: “I invite Boris Johnson in the historic words to consider his position and become the shortest serving PM there’s ever been.”

From here, anything seems possible. Johnson could try tabling another motion for a general election, hoping the third time is a charm. Corbyn could call a no-confidence vote in hopes Labour could form a government with the Lib Dems and Scottish National Party. Those parties might be able to set aside their infighting and reach a coalition agreement, but their differences over Brexit might be insurmountable. That risk could inspire Corbyn to try to run out the clock until after Johnson has secured a Brexit delay, if doing so proves necessary. Another possibility is Johnson tabling a no-confidence vote in his own government in hopes of forcing a general election. That would put the opposition parties in a tricky position. Supporting the motion could force a general election they would prefer to delay. But not supporting it would probably be an odd look politically.

So for now, political uncertainty rules the day. This isn’t a change—uncertainty has been the bane of UK markets for many months. We remain of the opinion that what UK and EU stocks need more than anything is clarity. Clarity on what Brexit will look like—deal or no deal. Clarity on when it will occur. Clarity on which party will head the UK’s government and what their policy agenda will be. In our view, the most beneficial outcomes for markets would be those that end the uncertainty sooner rather than later. That includes Brexiting on Halloween with a deal as well as Brexiting three months later without one. Fears of a worst-case-scenario no-deal Brexit are very likely baked into stock prices. Anything milder than that should therefore be a positive surprise. Even if there are port backups for a few days as truckers get their new paperwork in order, trade continuing—even if hampered some—ought to be relief enough for stocks. Any outcome that extends the uncertainty indefinitely, however, would probably just keep a foggy malaise hanging over UK stocks. So while we are agnostic on Brexit itself, we doubt a second referendum would be an elixir for markets. If anything, it would likely bring another round of lawsuits and much greater uncertainty.