Italian populists said the last word on Sunday. Italy’s constitutional referendum, which was also a confidence vote for Prime Minister Matteo Renzi, has been rejected with 59%. Renzi resigned amid a heavy defeat.
The Italian referendum hammered the mood in the first hours of trading this week.
Capital flew into safe heaven assets in Asia. Gold, the Swiss franc and the Japanese yen benefited from an immediate flight to security. Nikkei (-0.82%) and Topix (-0.75%) sold-off on the back of a stronger yen. Gold rallied to $1188, yet the 200-hour moving average acted as a solid barrier to the knee-jerk rise, as apparently, a clear majority of traders didn’t find the Italian referendum’s outcome alarming enough to reverse the negative trend in the yellow metal.
The euro tanked to a 20-month low against the US dollar in Asia. The sell-off has been softer than expected, perhaps due to a positive note out of the Austrian election. Austria pushed the populist, anti-immigrant candidate Norbert Hofer out of the presidential race, giving the euro a narrow window to breath into.
But, the picture unexpectedly changed 180 degrees into the European open.
FTSE MIB first tanked to 16723 on the lack of visibility after Renzi’s resignation. Although the president has 70 days to form a government, the right wing parties have already started calling for an early election, which could well mean the rise of an anti-establishment movement in Italy and compromise the country’s membership in the Eurozone, and even in the European Union.
Then suddenly, the equity markets were hit by a massive short squeeze. European indices and US futures aggressively reversed losses, including the FTSE MIB (+0.57%) itself. The DAX surged 1.74%, as the CAC rallied 1.41%. Euro Stoxx 50 futures recovered Asian losses (-1.20%) and gained 1.49% in Frankfurt.
FTSE shifts higher, services PMI beat estimates
All FTSE 100 sectors shifted higher at the open. Financials rapidly recovered early losses, as mining stocks surfed on firmer commodity prices.
Barclays (LON:BARC) (+3.03%), Prudential (LON:PRU) (+1.76%), Lloyds (LON:LLOY) (+1.95%)
Rio Tinto (LON:RIO) (+2.20%), Glencore (LON:GLEN) (1.91%) outperformed their peers as copper futures rose by 1.64%.
On the flip side, Randgold Resources (LON:RRS) (-4.29%) and Fresnillo (LON:FRES) (-3.51%) took a severe hit as money flew back to the stock markets, once the knee-jerk reaction to the Italian referendum had come off the way.
Cable surged above its 100-day moving average (1.2730), as the EUR/GBP stepped below the 200-day moving average (0.8352) for the first time since the Brexit referendum. The better-than-expected UK services PMI (55.2 in November vs 54.2 forecast & 54.5 previously) should give a further positive spin to the pound throughout the day.
Moving forward, the FTSE 100 stocks could see a potential advantage in the rising anti-establishment vows at the heart of the European Union. Such turbulence would pave the way for more favourable negotiations with the UK in the post-Brexit era. As tough as it sounds, the UK could be better off facing a weakened EU than a strongly united one.