(28 MAY 2018)DAILY MARKET BRIEF 1:Italy’s political turmoil is not over
The market greeted Sergio Mattarella’s decision to reject euro-sceptic Paolo Savona as Finance Minister. After falling as much as 0.65% last Friday, the single currency bounced back on Monday morning and reached 1.1728, up 0.55% on the session. Similarly, selling pressures on Italian bonds eased significantly with the 2-year yield falling 15bps to 0.335%, while the 10-year one gave up 9.5bps and slid to 2.365%. On the equity market, the FTSE MIB jumped to 22,760 points, up 340 points or 1.50%.
By blocking the formation of the government, Italy’s president played the card of prudence as he feared it could endanger the country’s membership in the European Union. Even though, the pressure seems to have eased for now, Italy is far from being out of trouble. Indeed, both the 5-Star Movement and the League called for fresh elections, arguing that Mattarella didn’t respect the decision of the people to go with a eurosceptic and anti-establishment coalition government. Sergio Mattarella would most likely face an impeachment request from the populist parties.
Uncertainties may have eased in the short-term but in the longer-term this is a different story as the political mess may increase ahead of fresh election. For now, the single currency takes a breather as EUR/USD rose 0.40% to 1.17, while EUR/CHF climbed back to 1.16.
By Arnaud Masset
