Eyes cannot be taken off Britain and Europe!! Brexit and recession! ~Highlights and event schedule for the week of March 25~

Three days of UK Parliament votes, the EU Summit, and sleepless days since the start of the month. In the end, with no decision reached, the Brexit deadline arrives this weekend. So, this week is the biggest turning point. (I may say it every week...)

Also, as I have been concerned for some time, the worry about the European economy slipping into recession has finally emerged. In Europe, including Germany, France, Italy, and Spain, economic indicators have come in below expectations. The surprise was especially sharp in Germany, posting the lowest level in six years. The euro dropped significantly, and the EUR/JPY fell by more than 200 pips in the end.

◎ This Week's Focus

1) Brexit-related in Britain and Europe

・May's Withdrawal Agreement vote

At last week's EU Summit, the Brexit deadline was extended. What becomes crucial now is voting on the withdrawal agreement and the possibility of a no-deal Brexit.

First point: Will Prime Minister May's withdrawal agreement pass this week or be rejected? If passed, negotiations with the EU culminate in an extraordinary EU summit!

Second point: By April 12, withdrawal plan B, or a no-deal Brexit, or a long-term extension of the Brexit deadline through participation in the European Parliament elections.

Third point: If Plan B is accepted, a postponement of the Brexit deadline to May 7 or May 22.

Fourth point: No-deal Brexit by May 7 or May 22 if no agreement is reached.

Whether the Brexit talks can be settled by the above points, or whether they move toward no-deal Brexit or the revocation of Article 50 of the Lisbon Treaty (no Brexit) if the talks fail by the fourth point, is the current trajectory. However, the reality is that we never know when or where this might change. Therefore, the third vote on the withdrawal agreement this week is crucial.

If this week's withdrawal agreement vote passes, there is no problem, but if it fails, attention will focus on the margin of votes. The first vote was a 230-vote margin, the second vote a 149-vote margin. If the margin for the third vote is not considerably reduced, a path to修正 (amendments) becomes unclear.

If the margin is small, a revised proposal could be submitted by April 12, raising hopes and attention for Plan B.

Conversely, if the margin is large, the current withdrawal agreement revisions are unlikely to be valued, and the path may shift toward no-deal Brexit or a long-term extension. Therefore, all eyes are on this week's withdrawal agreement vote.

・Legal opinion from Attorney General Cox

One major reason the second withdrawal vote failed was the legal opinion of Attorney General Cox. Northern Ireland's DUP and hardline Conservative MPs reportedly opposed based on his opinion. If the legal view is revisited and the risk reduced, those in the Northern Ireland DUP and Conservative hardliners may come over to support, potentially enabling May's withdrawal agreement to pass.

Whether May's withdrawal agreement will pass or fail is a key point to watch.

・Second referendum

In the UK, there is a system to propose topics on Parliament's website and gather signatures. Anyone can propose a topic.

Last weekend, a proposal for a second referendum, the revocation of Brexit, and the withdrawal of Article 50 has gathered 2 million signatures. With this signature momentum, UK Parliament debate is anticipated. If a debate occurs, when will it take place? This is a focal point.

There have been protests in the UK as well. If signatures reflect the voice of the people, there is also keen interest in how Prime Minister May will respond.

2) Worries about European economic slowdown

Last week's PMI figures significantly underperformed expectations. The euro was sharply sold, and stock prices broadly declined as risk-off sentiment took hold.

This week, many indicators in the euro area will be released, including the HICP (consumer price index) and GDP.

Additionally, from Wednesday the 27th, many ECB officials are set to speak, starting with Draghi. The ECB ended QE at the end of last year, but at this month's meeting decided on TLTRO. The ECB has shifted toward easing signals. With the ECB pivoting to a dovish stance, markets will scrutinize how it interprets the recent deteriorating economy.

3) US Treasury yields and the inverted yield curve
 

Brexit, Europe, Oceania, and China slowdown are driving a risk-off trend. Safe-haven currencies (the dollar, yen, and franc) attract funds, while bond markets also attract capital. In particular, funds flow into US, Japanese, and German bonds, sending Japanese and German 10-year yields into negative territory. The US yield curve is inverted, with the 10-year yield lower than the three-month yield—an indicator of recession risk.

This week, there are US Treasury auctions scheduled. It will be important to monitor US yields and the yield curve.

◎ This Week's Event Schedule

March 25 (Monday)

10:45　USDEvans, President of the Chicago Fed, speaks

18:00　EUR　Germany Ifo business climate index

19:00　USD　Cleveland Fed President Mester speaks

05:30　AUDEllis, RBA Deputy Governor, speaks

06:45　NZD　NZ trade balance

08:50　JPYMain opinions at the Bank of Japan Policy Meeting (March 14–15)

09:30　USDRosengren, Boston Fed President, speaks

16:00　EUR　GfK consumer confidence (Germany)

16:45　EUR　France GDP

16:45　USD　Mester, Boston Fed President, speaks

19:30　USDEvans, Chicago Fed President, speaks

20:00　GBPBreeden, Deputy Governor of the BOE, speaks

20:00　EUR　Macchi, Slovakia central bank president

21:30　USD　Building Permits & Housing Starts

22:00　HUF　Hungarian policy rate announcement

23:00　USD　Consumer Confidence Index

March 27 (Wednesday)

02:00　2-year note auction

04:00　USD　Daily San Francisco Fed President Williams speaks

08:00　AUDKent, RBA Deputy Governor, speaks

10:00　NZDRBNZ policy rate and statement released

16:00　NOK　Norwegian unemployment rate

17:00　EURSpain HICP (cPI)

17:00　EURDraghi, ECB President, speaks

17:00　EUR　Novotný, Austria central bank president, speaks

17:45　EURPlott, ECB Executive Board member, speaks

19:00　EURLautenschläger, ECB Executive Board member, speaks

19:45　EURDeginto, ECB Vice President, speaks

21:30　USD　US trade balance

21:30　CAD　Canada trade balance

22:30　EURMerlisch, ECB Executive Board member, speaks

23:00　MXN　Mexico trade balance

23:30　USD　Crude oil inventories

March 28 (Thursday)

02:00　USD　5-year note auction

06:30　USDGeorge, Federal Reserve President, speaks

09:00　NZD　NBNZ Business Confidence

16:00　GBP　House price index

18:10　EURDeginto, ECB Vice President, speaks

19:00　EUR　Euro area consumer confidence

20:15　USDQuarles, Fed Vice Chair, speaks

21:00　CZK　Czech policy rate decision

21:30　USDGDP (preliminary)

22:00　EURGermany HICP (cPI)

22:30　USDClarida, Fed Vice Chair, speaks

March 29 (Friday)

UK-EU Brexit deadline

02:00　USD　7-year note auction

02:15　USDWilliams, NY Fed President, speaks

04:00　MXN　Mexico policy rate announcement

05:00　NZDOrr, RBNZ Governor, speaks

06:20　USDBrad, President of the St. Louis Fed, speaks

06:45　NZD　Building permits

09:01　GBP　GfK Consumer Confidence

16:00　EUR　Germany retail sales

16:45　EURFrance HICP (cPI)

17:00　EURSpain GDP

17:55　EURGermany unemployment rate

18:30　GBPUK GDP

19:00　EURItaly HICP (cPI)

19:00　EUREuro area HICP (cPI)

21:30　CADCanada GDP

March 30 (Saturday)

01:45　USDQuarles, Fed Vice Chair, speaks

02:00　USD　Baker Hughes rig count