Markets Digesting Italian Referendum Turbulence

Markets Digesting Italian Referendum Turbulence | Hopes on ECB | Trump Maintains His Stance on China

Italian prime minister, Matteo Renzi, has become the latest causality as the Italian referendum issues another political blow in what has been a tough year. The constitutional changes which he was asking for have cost him his job. The prime minister has declared that he no longer has any desire to remain in his position, the direct consequences of which have become apparent when you look at the Eurozone's currency.

This is another brutal day for the euro and traders have pushed the currency towards a 20 month low against the dollar. Yes, the outcome of this referendum was very much in line with expectations, but investors are certainly concerned about the future of the third biggest economy in the Eurozone. Having said that, these anxieties have not intensively wrapped their poisonous tentacles around the yellow metal. This was the case, we would have seen a surge caused by fear in the markets. This fear has yet to materialise.

This can be attributed to the support from the European Central Bank which investors are very much relying on. They are hopeful that the bank will step in if there is any kind of panic selloff for the Italian bonds. The ECB is meeting later this week and it is widely expected that the bank will extend its QE programme until June. The bank will have new economic forecasts and they will make their decision accordingly. The last set of data before the ECB meeting at which the president of the ECB will be looking at will be the German and Spanish industrial output and the final Q3 GDP numbers.

The Italian banking sector is where most of the focus for the day will be. The main concern is who will be the caretaker of the government and whether the market thinks that who takes the reins is in good shape to steer the economy in the meantime. If they are, we may not see much panicking at all. In fact, the move for the FTSE MIB is clearly showing that we are far off from earlier lows as investors have started to shake off negative sentiment. Hopes are that the ECB is there to provide any kind of support the country may need and also that the care taker government will not make matters worse for the country.

More positive news also emerged from Austria where 51.7% of the public choose to elect the pro-EU independent, Alexander Van der Belen as their next president. This created much relief for European leaders given the anti-European rhetoric that is making its way across Europe like a ripple in a pond.

Back in the US, Donald Trump has sent new shockwaves among the political world via his Twitter account. In addition to openly criticising China policies, he spoke to Taiwan's leader, something which could make the relationship between China and the US even more fragile.

Naeem Aslam
Chief Market Analyst
Think Markets UK Ltd

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