Quitaly?
The Italian referendum has ended in a vote against Matteo Renzi’s government and as such, the Prime Minister has resigned as he said he would. The euro has fallen by around 1% overnight but despite the lack of polling data in the past fortnight, the result was largely expected and priced in.
Contrary to popular belief, this is not an existential crisis for Italy; never has it been more ironic that status quo is an Italian phrase. The likelihood is that an interim technocratic government is installed to govern for the remaining 14 months of this term before elections, which must take place by May 2018.
However, this was not just a populist vote; as soon as Matteo Renzi made this about himself, enemies had another reason to go against the government’s position and the roughly 56-44 outcome goes some way to explaining that.
Investors will likely tire of taking the euro lower soon; fresh selling impetus will come, should a technocratic government look unlikely or weak and an election takes place sooner rather than later. Similarly, we can expect a coliseum’s worth of rumours over the banking sector in the coming sessions, although the initial reaction of Italian sovereign debt markets have been to spike to levels not seen since…. Thursday.
Brexit heads to the Supreme Court
Brexit news is back on the map following a hat trick of appearances from Foreign Secretary Boris Johnson on the Sunday morning political shows, with the main takeaway being his opposition to paying the EU for access to the single market.
We also think that GBP will see some volatility this week from fears around the Article 50 court case being put before the Supreme Court. The result will not be known until next year, so there is little good in getting hyped up about it. Governor Carney speaks today at a university lecture but we have little indication what it is about.
Trump and Twitter
Elsewhere, we are uncertain as to how Donald Trump will cause an international incident, but you have to believe that his telephone will be involved somehow. Following a call from the Taiwanese President which got Beijing hot under the collar, the President Elect tweeted
Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into…their country (the US doesn’t tax them) or to build a massive military complex in the middle of the South China Sea? I don’t think so!
So trade wars can now be started on Twitter. The USD is still looking popular despite Friday’s payrolls report that showed a decline in wage growth. We believe this was likely due to seasonal factors and an increase in low paid, part time work for the festive season.
Elsewhere
Kiwi PM John Key has also resigned this weekend and we believe that his current Deputy PM Bill English will likely take over.