Renzi leaves as Italy votes NO
The Italian referendum is the major story that will dominate market moves throughout Monday's trading session after Prime Minister Matteo Renzi left his position after a bruising defeat, with 60% of people voting to reject the constitutional changes. The initial market reaction was to the downside, but Renzi's decision to leave so quickly after the result meant that added clarity drove the Euro and European equity markets to the upside.
It will be the uncertainty that cause the big swings in markets over the next few days as the world waits for news on who will lead Italy. Expectations are that a caretaker will take over from Renzi and the democratic party will remain in power, however the alternative scenario is an election that could well see a further move to the right in Europe. If an election is called then it is expected the leader of the Five Star Movement in Italy and a campaigner for the NO vote Bepe Grillio could well be the biggest threat to stability. Mr Grillio has already promised a referendum on membership of the Euro as a key election pledge if he was to run for office.
Uncertainty is what will damage markets this week and clarity must be bought in soon to stop any more erratic market swings. The stability is needed for the Banking sector in Italy above all else with Monte dei Paschi looking over the precipice and could well be looking at state aid in the coming days. Uncertainty is the biggest risk to the markets and with comparisons already being made to the Trump and Brexit votes, Italy is very much in limbo.
Italian and Eurozone politicians and officials will tell you that this vote is not a vote against Europe or the Euro, however we cannot believe that. Italy has voted against PM Renzi and against the establishment, like the UK and the US it has voted for power remaining with the people and this vote is potentially the biggest threat to the Eurozone we have ever seen.
by James Hughes