Italy's Future Quickly Discounted By Markets


Financial market players are getting some experience under their belt when it comes to populist uprisings in the west.

With Brexit, it took several days of selling for markets to realize the world wasn’t ending and in fact that the outcome of the vote will be better for the UK in the medium to long-run. With the U.S. election of Donald Trump, it took only hours for market players to stop selling and realize Trump’s plan is much better than Hillary’s, and will likely boost growth. For yesterday’s Italian referendum on legislative reform, it took only minutes.

Now, some 24 hours since the vote, most analysts can’t even agree if this was an “event” or not. The Euro crashed against the U.S. dollar, the British Pound, and the Japanese Yen on the back of the vote, though within minutes had rallied back to retrace the sell-off and finish higher on the day. Italian bonds sold off and rallied. Uncertainty remains for certain, and primarily about when and if new elections will be called in Italy. PM Renzi announcing his retirement was priced in, and quickly arbitraged by the algos within minutes.

The Italian legislative grid-lock remains in place, and the prospects for a new government have improved, with the Five Star’s party leading for control. It will take time for a new elections, perhaps late 2017, until then the banking sector decay will go on, the flood of refugees will keep coming, and the economic stranglehold that comes from the Euro and the ECB will remain around the nation’s collective neck.

The clock is ticking for Italy.

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