What's happening this week?

Wednesday, 9 January – House of Commons re-opens debate on Theresa May’s Brexit agreement

Theresa May continues to encounter difficulty in her attempts to secure greater clarification on the backstop. Such has been May’s lack of progress in securing binding commitments that there has been speculation that she will again delay the ‘meaningful vote’ on her agreement, currently scheduled to take place on 15 January.

Debate on the agreement is scheduled to open on 9 January. We expect that these discussions will put persistent pressure on May. Any attempt to delay the vote for a second time would rely on the DUP and Tory rebels declining to back any Labour motion of no-confidence, and on May reneging on an assurance – made over the weekend – that the vote will go ahead.

When her deal is eventually voted on and – as we expect it to be – defeated, the focus should begin to shift towards potential ‘plan B Brexit’ scenarios.

Wednesday, 9 January – Macedonian Parliament to debate Prespes agreement, with Angela Merkel set to visit Greece on Thursday 10 January

The Prespes Agreement which aims at settling the name dispute between Greece and its neighbours in the Former Yugoslav Republic of Macedonia (FYROM), goes before the FYROM Parliament on Wednesday with a vote expected no later than 15 January. Tsipras will lose his coalition partners as a result of his support for the deal and faces a difficult choice when considering the timing of the vote which must take place by March. Angela Merkel visits Greece on Thursday, ostensibly to support the Greek economy but she is expected to encourage New Democracy leader Kyriakos Mitsotakis to soften his opposition to the deal. Approval of the deal will see FYROM change its name to the Republic of North Macedonia. Significantly, from the West’s perspective, this will open the country’s way to membership of the NATO alliance.

Thursday, 10 January – Publication of ECB December Minutes to shed light on 2019 policy direction

As ever, the minutes of the ECB Governing Council’s (GC) most recent meeting will be closely assessed for any additional information that they provide about the future direction of Frankfurt’s Monetary Policy.

There will be particular interest in the minutes of the December meeting given that it confirmed the end of primary QE purchases. The minutes may provide some indication of what degree of flexibility, in terms of timescale, the GC is willing to provide for the reinvestment scheme. They should be assessed for indications of how the GC would react to a slowing economy, or weaker than expected inflation, and how this would relate to the current forward guidance.

The most recent indications are that inflation continues to be stubbornly low. When coupled with indications of slowing Eurozone growth, we believe that the balance of risk will remain tilted towards a delayed normalisation process which means we cannot rule out the possibility of a rate hike being delayed beyond Q3 2019.

The minutes should provide greater clarity on how substantial discussions on a TLTRO were, and allow for markets to better calibrate the likelihood that one will be launched in Q1.

Thursday 10 January – Details of new internet tax to be presented at Austrian cabinet meeting

Following the entry into force of France’s digital tax on 1 January, the Austrian government is wasting little time and will present proposals of its own at this week’s cabinet meeting. In announcing the tax, Austrian Chancellor Sebastian Kurz stated that “it is not acceptable for corporations, like Facebook or Amazon in Austria, to make big profits, but to pay next to no taxes here.” Kurz also emphasised that work will continue at European level to introduce an EU wide tax.