Week Ahead (4 March)

w/c Monday, 4 March – May looks to bolster support for her deal, as Bundestag legal opinion adds kink to Article 50 extension process

There is growing optimism in British government circles that Theresa May will be able to narrowly bring her deal through parliament, through a combination of Labour Party votes and support from the DUP and some ERG Tories.

On the Labour benches, May is seeking to appeal to those MPs in Brexit voting constituencies who are loath to support a second referendum. May has used an op-ed in today’s Sun newspaper to promise an aid package of £1.6 billion to support struggling

towns following Brexit.

May will hope that the number of Labour MPs willing to accept her proposals will be enough to counteract an expected rebellion from ERG diehards, of which there are likely to be at least 20. Bringing the DUP and other ERG MPs on board will still require the Prime Minister to secure some sort of concession from the EU on the Irish backstop.

The timing of the European Elections, to be held in late May, has frequently been cited as a potential complicating factor in any Article 50 extension. The British government is of the view that an extension could certainly not run beyond the first week of July, when the new European Parliament is due to be sworn in. The British position has now though been backed up by a Bundestag legal opinion, which has come to the conclusion that an Article 50 extension cannot go beyond the 23 May European Election date.

Neither the UK or the EU are likely to want to have to deal with legal uncertainty. This makes it likely that any extension will be short, and contingent on it being a one off. The corollary of this is that it plays into Theresa May’s clock management strategy.

Tuesday, 5 March – Dissolution of Spanish Parliament set to shift Spain into election mode

The Spanish parliament has been rushing through Brexit contingency related legislation in the past number of days, ahead of its dissolution on 5 March.The ease with which Brexit legislation has been approved belies that fact that, in the period since he announced a snap election, Pedro Sanchez has used parliament to try and establish a platform for a left leaning general election campaign.

Having previously signalled that he would compromise with the PP on a mortgage bill, Sanchez subsequently positioned himself in favour of a Tax on Documented Legal Acts set at between 0.5% and 1.5% of the total mortgage, to be paid by banks.

Sanchez’s move away from compromise appears to be pure electioneering – presenting voters with a choice of whether to vote with or against the interests of banks. This is likely to be a preview of a left leaning PSOE election manifesto, part of a strategy pursued by Sanchez to redefine the narrative around an election that may otherwise be dominated by the Catalan question.

Wednesday, 6 March – Greece set to return to ten year debt markets following Moody’s upgrade

Moody’s 1 March upgrade of Greece – from B3 to B1 – will be followed by the country’s first issue of ten year debt in almost a decade.

The PDMA is now expected to proceed with an issue on 6 March, with notes expected to yield in the range of 3.90% - 3.95%. The PDMA is hopeful that it can raise €3 billion with

this issue.

This week the government is also expected to put a revised version of the Katseli law to a parliamentary vote. The provisions of the law, which is designed to protect borrowers through the restructuring of debts, have been the subject of negotiations between the Greek government and European institutions with the latter consistently pushing for stricter applicability criteria.

Thursday, 7 March – ECB Monetary Policy meeting to take account of new staff projections

The 7 March ECB meeting will be accompanied by the publication of new staff economic projections. These projections will include downgraded growth forecasts for the Eurozone, reflecting the slowdown that has been evident in sectors of its economy since the second half of 2018.

Market interest in the meeting will be focused on the policy response to the downgraded projections, and whether they will lead to changed forward guidance or the introduction of a TLTRO.

On the forward guidance, it is possible that at the 7 March meeting the GC will want to continue to wait and see, particularly given that Mario Draghi’s term ends later in the year. Stretching the guidance on rate hikes – clarifying that they may not come until 2020 at the earliest - could be viewed as tying the hands of his successor.

The introduction of a TLTRO at the 1 March meeting should be seen as unlikely, as the ECB will want to send a stronger signal to the market ahead of its introduction. The staff projections will give an opportunity for further GC discussion of a TLTRO, and for Draghi to start trailing the idea that it could be introduced later in the year.