Stormont Break Through Parliament But DUP Remain Aggrieved

Stormont Break Through Parliament but DUP Remain Aggrieved

Yesterday, the government comfortably got their Stormont Brake section of the Windsor Framework through the House of Commons, though little has changed in relation to the Stormont stalemate. The Stormont break serves as one of the most important aspects of the revised Northern Ireland Protocol which was agreed by Rishi Sunak and Ursula von der Leyen earlier this year and tries to give NI Assembly members the chance to raise objections to any new EU legislation applying in Northern Ireland. The passing of the bill in the commons means that the government is now one step closer in rewriting the NI protocol.

While it was hoped that an adoption of the Windsor Framework deal would allow for power sharing in Stormont to continue, the DUP’s apparent rejection of the revisions indicates that the political deadlock in the Northern Ireland Assembly will likely continue. Crucially, the Stormont brake could only operate if there’s a sitting Assembly – a counterfactual given that the DUP have refused elect a speaker in Stormont (the pre-requisite of forming a government) while the current arrangements are in place. In many ways it seems as though progress is minimal, given that the driving force behind revising the NI protocol was to resume parliamentary functions in Stormont.

Indeed, yesterday the DUP’s leader Sir Jeffrey Donaldson stated that “I have consistently indicated that fundamental problems remain notwithstanding progress made. Consequently, there is not a sustainable basis at this stage to enable us to restore Stormont.” Hence, for now the stalemate looks set to continue further.

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Further Headaches for Johnson over Party-Gate

Yesterday, as MPs resumed after voting on the Stormont Break, Boris Johnson told the Parliamentary Privileges Committee that “hand on heart, I did not lie to the House”. This formed part of his defence for his conduct to the House of Commons over the party-gate saga. Many members from the seven-member committee were less-than-impressed by Johnson’s rebuttal, with the chair, Harriet Harman stating that Johnson relied on “flimsy assurances”. Meanwhile, one Tory MP stated that "You did not take proper advice," to which Jonson merely replied, “this is complete nonsense".

Having heard Jonson’s defence, the committee will also hear further evidence from a number of witnesses and sources. If the committee finds that Johnson committed ‘contempt’ towards parliament, they will make a recommendation over the punishment which will subsequently be subject to a vote in the House of Commons. Hence, all eyes continue to be on Westminster today to watch developments unfold.?

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Markets Await BoE Interest Rate Decision

Following yesterday’s hotter-than-expected UK CPI print, markets are weighing on the BoE interest rate decision where the general market consensus is erring on Threadneedle street conducting a 25bpt rate hike. Yesterday’s unexpected rise in inflation came against market forecasts that the rate would fall from double digits for the first time since August 2022, and has reiterated the challenge that Threadneedle Street faces in bringing inflation back to their 2% target rate. The central bank however remain concerned over the impact of an overly restrictive monetary policy on mortgage holders, growth and recent turmoil in the global banking sector. If the BoE do opt for a 25bpt hike, we would see the base rate rise from 4% to 4.25% and would mark the 11th consecutive rate hike. Markets are also considering the impact of more dovish members of the MPC including Swati Dhingra and Silvana Tenreyro’s who voted to keep rates unchained during the February MPC meeting. As such money markets are currently pricing in a terminal rate of around 4.5% in August 2023, 50bpts higher than the present 4% base rate.

Fed Raise Rates 25bps

Yesterday saw the Fed raise rates by a further 0.25%, brining the base rare to 5%. While their rate hike came amongst a hotter-than-expected inflationary print earlier this month, concerns over the global banking sector in the wake of SVB and Credit Suisse’s weighed on policy makers’ decision making. While dovish tones were also evident from Powell in stating that the Fed considered a pause in rate hikes in the run up to the meeting, the chairman also indicated that the committee did not foresee cutting rates this year.

Finma Remain Resolute in Decision to Wipe Off Credit Suisse Coco Bonds

Yesterday, amongst great controversy, the Swiss regulator Finma reiterated that the wiping-off of $17bn of Credit Suisse’s Additional Tier 1 (AT1) bonds was legitimate. Here, the chief-exec stated that the AT1s “contractually provide that they will be completely written down in a ‘viability event’, in particular if extraordinary government support is granted”. Hence, given that Credit Suisse received emergency government support, Finma maintain that the threshold condition was met.

As we looked at earlier in the week, AT1 bonds are a fixed income instrument created in the wake of the 2008 crash to try to ensure that in the event that a bank went into distress, losses were absorbed by the principals of some bond holders to try to mitigate against the need for bail outs. While AT1s are subordinated to other forms of debt, they rank higher than preferred equity and common equity. Hence, when it was announced that $17bn of Credit Suisse’s AT1 bonds were written off while at the same time shareholders were set to receive CHF3 billion in an all-share merger, investors worried over an unsettling of the conventional hierarchy of lenders protection.

Given that the global market for AT1 bonds stands at around $275bn, this unsettling led to a risk off move as markets weighed on whether the Swiss authorities had created a potentially dangerous precedent in the AT1 market, and bond market more generally.?As these ripples pervaded throughout global markets yesterday, regulators in Frankfurt (European Central Bank, the European Banking Authority and the Single Resolution Board) were forced to comment on developments and reassure AT1 bond holders. Here, they reaffirmed that holders of CoCo bonds would only suffer losses if shareholders had been wiped out, thus reasserting the conventional hierarchy. Such comments were echoed by the BoE shortly after, again helping to restore confidence in the market.

Therefore, though lawyers are in discussions with Credit Suisse over potential legal action, Finma are so far being resolute in their decision which they say formed part of a solution to “protect clients, the financial centre and the markets”.