“In Italian politics, no one ever wins”
Italian Prime Minister Matteo Renzi
December 5th, 2016
Yesterday’s voter rebellion in Italy, which has resulted in the immediate resignation of Prime Minister Matteo Renzi, confirms that the euro is caught between two powerful and irreconcilable forces – an existential threat to the single currency which is gradually pushing it lower, countered by a material undervaluation which continues to (barely) keep it afloat.
Italy is a relatively pro-Euro country (only 15% of the country favours exiting the single currency according to a recent poll), but it is not a happy one. The Italian economy has effectively stagnated since the introduction of the euro 18 years ago – in fact, real per capita GDP has actually shrunk over this time period. It would be wrong to interpret yesterday’s Italian referendum result as an explicit rejection of the euro; rather it was an expression of intense dissatisfaction with the...
As we look ahead at 2017, the Bank of England will face a dilemma over monetary policy. On one hand, the Bank will want to maintain its accommodative stance so not to risk unsettling nervous consumers in the wake of the uncertainty created by Brexit. On the other, the sharp fall in sterling, coupled with the threat of rising oil prices, looks set to stoke inflation in 2016, leaving the MPC with a challenging predicament as we head into 2017.
Brent Crude is currently 38% up from its lows from last January (when a barrel of crude touched $33.85). Market chatter at the beginning of last week was of possible production cuts by OPEC members to increase prices (and therefore profitability) and as a result, Brent touched $50 on Tuesday. However, the rally was short lived after Saudi Arabia pulled out of a deal with Non OPEC members, including Russia, saying...
With the Brexit and US Presidential Election votes now behind us, the market focus now shifts to the Italian Referendum on Constitutional Reform. Voters will be asked whether they approve of amending the Italian Constitution to reform the appointment and powers of the Parliament of Italy, as well as the partition of powers of State, Regions, and administrative entities. Prime Minister Matteo Renzi is staking his reputation and position on this vote, having vowed to step down should he fail in getting the reforms passed.
Whilst some in the markets don’t feel this vote is a big deal, given that Italians change governments on almost a bi-annual basis (Renzi is the 8th Prime Minister since 2000), most believe, as I do, that the outcome of this referendum poses a significant risk to markets.
Like Brexit and the US election, the Italian vote is proving to be extremely polarizing among the populace, with...