Market reaction to Italy election outcome


Leader of the Brothers of Italy Giorgia Meloni reacts at the party’s headquarters on election night in Rome, Italy, September 26, 2022. REUTERS/Guglielmo Mangiapane

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MILAN, September 26 (Reuters) – Giorgia Meloni is expected to become Italy’s first female prime minister at the head of the right-most government since World War II after leading a conservative alliance to victory in Sunday’s general election. Continue reading

Here are some of the initial reactions from market observers:

EQUITIES: Italy’s blue-chip FTSE MIB (.FTMIB) index rose 1.3% in early trade, while the banking index (.FTITLMS30) rose 2.4%, outperforming the European sector (.SX7P).

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BONDS: Italian bonds slightly underperformed their peers on Monday, pushing the Italian-German yield spread to a two-week high of 238 basis points. It last traded at 234 basis points.

FOREX: The euro was broadly flat after touching a fresh 20-year low against the dollar overnight on simmering recession fears. Continue reading

ALESSANDRO TENTORI, CHIEF INVESTMENT OFFICER FOR ITALY, AXA INVESTMENT MANAGER

“There is some widening in spreads, but it’s nothing serious, also because we’re seeing an upward movement in all interest rates. Now let’s wait for the list of ministers and see if there are any critical issues.

“The weakness of the league could play in the Brethren of Italy’s favour, and a government more aligned with Brussels than a strong league might have wanted to use some controversial ministers. (The weakness of the league) could therefore be a positive signal for the markets.

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“Today’s move higher is a continuation of Friday’s market reaction following the UK mini-budget and sounds like a warning to eurozone countries as well.”

MATTEO RAMENGHI, CHIEF INVESTMENT OFFICER, UBS WM ITALY; THOMAS WACKER, HEAD OF CIO CREDIT, UBS

“Italian government bond spreads have more than doubled from their pandemic lows and are trading 230 basis points over 10-year German Bunds.”

“We believe that investors in short to medium-term Italian bonds are well compensated for the risks arising from Italy’s high sovereign debt burden and recurring episodes of political uncertainty.”

“While the ECB is unlikely to intervene directly in response to modestly higher spreads, we believe it would ultimately help contain significant distortions as long as Italy remains on par with the EU on fiscal budgetary policy.”

PETER MCCALLUM & EVELYNE GOMEZ-LIECHTI, RATES STRATEGISTS, MIZUHO

“(Giorgia) Meloni’s spending plans sound worrisome on the face of it and could put further pressure on the euro in the short term, but ultimately the EU and ECB’s TPI conditionalities should discipline the Italian Treasury and provide a backstop in the event of a breakout coming BTP Bund is spreading. Meloni’s political agenda has yet to be clarified, which is another risk to watch.”

LUCA CAZZULANI, HEAD OF STRATEGIC RESEARCH; LOREDANA MARIA FEDERICO, ITALIAN CHIEF ECONOMIST, UNICREDIT

“We expect a rather muted market reaction towards BTP credit spreads in the near-term as the election outcome was broadly in line with expectations.”

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“Some short covering is possible as investors entered the polls with moderately short BTPs and the risk scenario of a landslide victory for the right has been priced out. We continue to expect the 10-year BTP-Bund spread to trade close to 250 basis points by the end of the year.”

DOMENICO GHILOTTI, ANALYST, EQUITA

“From a market perspective, we expect the BTP-Bund spread to settle around 230-250 basis points while we wait for the market to assess the composition of the government and the budget bill, barring a change in tone with the new government or one significant deterioration in the macroeconomic environment.

“Higher inflation in both 2022 and 2023 leaves some leeway to keep the debt-to-GDP ratio under control (higher tax revenues offset higher borrowing costs and pension spending).”

GIADA GIANI, ECONOMIST, CITI

“A clear victory for a coalition makes it more likely that the next government will last longer than the previous ones. It also speeds up the appointment of the new government, probably before the end of October.”

“Meloni’s first major decision will be the appointment of finance minister, with a pro-European, fiscally cautious figure looking like a likely choice for now. We do not expect an immediate push for major fiscal easing, but we ignore the risks that the political agenda of the right will collide with EU goals in the medium term.”

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LORENZO CODOGNO, CHIEF ECONOMIST, LC-MA

“The role of Forza Italia can be crucial for the centre-right coalition and therefore offer some guarantee of international alliances and attitude towards Europe.

“The PD has weakened significantly, while the Five Star Movement has done well in opinion polls. All in all, not a big surprise despite some small but important shifts. The first steps taken by the new coalition will be crucial to see if the reassuring signals are confirmed. However, many questions remain unanswered.”

GIUSEPPE SERSALE, FUND MANAGER AND STRATEGIST, ANTHILIA CAPITAL PARTNERS

“There are no big surprises. I expect a relatively small impact considering that the Lega, the party with the least pro-European stance, seems to have weakened.”

“Right now the market seems to be more oriented towards macroeconomic issues. If we see Italian assets being disadvantaged, it could be because of the elections, but fundamentally… Italy is a country with (worrying) public finances, no matter who is in government.”

“The market knew it was going to end this way and at this stage will continue to focus on economic growth, monetary tightening and public finances, which remain a slippery slope for Italy.”

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Reporting by the Italian office and the London Markets team; Compiled by Agnieszka Flak

Our standards: The Thomson Reuters Trust Principles.



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