Looking Ahead (8 April)
Wednesday, 10 April – EU Council to consider fresh Brexit extension
Under the terms of the Article 50 extension granted to the UK at the 21 March EU Council meeting, the UK will leave the EU on 12 April. Per the conclusions of the council, the failure of the House of Commons to approve the withdrawal agreement means that the UK will ‘indicate a way forward before this date [12 April] for consideration by the European Council.’
The way forward being now being proposed by May are the Conservative-Labour cross party talks. May emphasised these talks, and her contingency plans if they fail, in a 5 April letter to Donald Tusk. This plan of action is presented as the rationale for a requested further Article 50 extension, to run until 30 June or earlier if the withdrawal deal is ratified before then.
May’s request for an extension will be considered at the 10 April EU council. Despite some noise from EU leaders, such as Austrian Chancellor Kurz, that there is not yet any sign of the changed conditions required for a further Article 50 extension, we do not expect that May’s request for a further delay will be denied. What is likely to be denied will be the request that the extension runs only until the end of June. It is understood that Donald Tusk is thinking along the lines of an extension of up to a year – or until the end of March 2020.
The initial months of a longer extension are likely to be dominated by final efforts on the part of Theresa May to force the withdrawal agreement through, either on the back of a cross-party agreement or a political declaration that has been reworked following binding parliamentary votes. If this process fails, then elections would become likely.
Wednesday, 10 April – ECB Governing Council Monetary Policy meeting
The 10 April ECB Governing Council (GC) meeting is unlikely to produce any changes to forward guidance, given that the GC already opted to use its last meeting – on 7 March – to make changes to its policy outlook.
Draghi is likely to be pushed on the ECB’s relatively flexible position on rate hikes in his press conference following the GC meeting, particularly in the light of further weak PMI data from Germany. Analyst polling now puts expectations for the timing of an ECB rate hike firmly into H2 next year. Nevertheless, we would not expect further changes to the forward guidance on rates until later this year, with any alterations likely to coincide with ECB data releases.
We also expect that Draghi will be questioned on the possibility of deposit rate tiering being introduced. We do not, however, believe that any move to introduce tiering will happen at the 10 April meeting. The gradualist approach of the ECB means that if the idea is to be adopted it will be more extensively trailed in the coming months, with any announcement likely to come in H2 2019.
Friday 12 April, IMF Spring Summit expected to agree early repayment by Greece of IMF debt
Last Friday’s Eurogroup decision to approve 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 may be the first step in a virtuous series of events for Greece, beginning with securing agreement at the IMF Spring Summit on 12 April to partially repay its expensive IMF debt early.
The prospect of eased financing conditions brought about by this partial early repayment has gone down well with markets such that Greek 5-year debt is now trading at 2.29% - a lower yield than US 5-year debt which trades at 2.31% at the time of writing. To fund early repayment of the IMF, the Greek public debt management agency is expected to raise €2.5 billion through a 3-year bond and a further €2 billion through a 7 year bond.