Italy: Uncertain future ahead - BBH

Research Team at BBH, notes that in Italy, as the polls had consistently shown, the referendum to reduce the size and power of the Senate was easily rejected. 

Key Quotes

“Prime Minister Renzi has indicated plans to submit his resignation.  Finance Minister Padoan, who canceled his plan to attend the EU finance ministers' meeting that begins today, is seen as a potential caretaker.”

“Reforms for the lower chamber are pending judicial review.  Parliamentary elections are slated for 2018.  It may come sooner, but it is not imminent.  Polls suggest that if an election were held today under the new electoral rules, the 5-Star Movement would win in the second round.  At the same time, polls suggest that there is not much appetite (about one in seven) in Italy to leave the EMU.  That said, we are hesitant to see the rejection of the referendum as part of an anti-establishment revolt.  For sure, there was an element of that, but it does not do justice to the widespread opposition included Monti, for example, and members of Renzi's own party.”

“The euro initially was marked down in early Asia to almost $1.05.  It recorded a new 20-month low.  By early European turnover the Europe had returned to unchanged levels near $1.0665 before consolidating.  Italy's 10-year yield is jumping nearly 10 bp.  From a week ago the yield is still off 7 bp.  The two-year yield is flat, while German, French, and Spain's two-year yields are a basis point higher.”

“Italy's stock market is above 0.3% higher, a laggard within Europe today.  Italian bank shares are off 1.25% after gaining almost 5.2% last week.  Recall that Monte Paschi is in the middle of a 5 bln euro capital raising exercise.  The Dow Jones Stoxx 600 is about 1% higher in late-morning dealings.  Financials are matching the market's performance.”