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Looking Ahead (1 April)


w/c Monday, 1 April – Further Brexit votes and diplomacy following latest defeat for May


The next round of indicative votes will take place this evning at 8pm to see if a viable alternative can be found to the Prime Minister’s deal. Should parliament fail to indicate a viable alternative Theresa May could attempt a further vote, hoping that the fear of no-deal will see it over the line. Even if Parliament picks an alternative, for example Ken Clarke’s customs union amendment which only failed by 8 votes last week, there is a view within HMG that this could encourage Brexiteers to finally back the Prime Minister’s deal since, for many of them, the prospect of Parliament pushing through a Customs Union would be worse than the Prime Minister’s deal.


The coming week will also see a flurry of diplomacy on the EU side, centred around Ireland. Taoiseach Leo Varadkar will travel to Paris on Tuesday to meet with Emmanuel Macron. Angela Merkel will travel to Dublin on Thursday.


w/c Monday, 1 April – Fallout from Ukrainian Presidential and Turkish local elections


The results of the first round of the Presidential Election in Ukraine largely ran in line with opinion polling. Volodymyr Zelensky – a former tv comedian with no political experience – finished in first place with just over 30% of the vote. Incumbent President Petro Poroshenko finished a distant second, with 16.69% of the vote.


Concerns are likely to persist that Zelensky will be unable to reconcile promises to increase living standards while adhering to an IMF austerity program and that he is too inexperienced to manage the slow burning military conflict with Russia in the east of the country.


In Turkey, preliminary results suggest that President Erdogan’s AKP led electoral alliance has still received the majority of votes across the country but that it has lost control of key cities. The capital, Ankara, has certainly fallen out of AKP control for the first time in 25 years. Results in Istanbul – a city invested with deep symbolic significance for the AKP – have not yet been declared but appear extremely close.


Should the AKP hold Istanbul in dubious circumstances it would stoke investor concerns about a further erosion of democratic standards under Erdogan. This could have particular consequences for the lira. Government attempts to defend the currency in the runup to the elections, by withholding liquidity, led to record high lira swap costs. This strategy is unlikely to be sustainable beyond the short term and a release of lira liquidity following the election could lead to further depreciation of the currency against the dollar.


Thursday, 4 April – ECB to publish minutes of March meeting


Coming after flash inflation projections for March, published on 1 April, and ahead of the 10 April Monetary Policy meeting, the minutes of the ECB’s 7 March meeting will allow for a deeper assessment of the decisions taken then.


As a reminder, the ECB used the 7 March publication of its latest staff projections to ‘substantially’ downgrade its forecasts for GDP and inflation growth in the coming year. The implication of the downward revisions was that the ECB will need to provide accommodative conditions for longer than had been anticipated. The minutes should provide an insight into the extent of divisions on the GC on how serious the economic downturn is, and to the thinking of how the ECB will act if the downturn becomes more sustained.


Friday, 5 April – Eurogroup decision to launch virtuous series of events for Greece


Having negotiated a solution with its lenders on the protection of primary residences from foreclosure, the Greek government wants Friday’s Eurogroup to agree the release of the first €970 million tranche of the €4.8 billion in ANFA and SMP bonds held by the ECB and other Eurozone central banks. Upon receipt of that tranche, Greece is hopeful that a virtuous series of events will follow, beginning with securing agreement at the IMF Spring Summit on 12 April to partially repay the IMF debt early.

The prospect of eased financing conditions brought about by this partial early repayment would in turn help Standard and Poor's upgrade Greek debt from BB - from B + on 26 April. This in turn would allow Greece to issue three-year debt at an interest rate close to 2% - a rate considerably cheaper than the 5% it currently pays on the debt owed to the IMF.

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