Financial market research and analysis

Whilst the euro has seen a mildly stronger start following the Italian elections, the Italian FTSE MIB futures were seen showing heavy losses, trailing noticeably behind European counter parts. The results in Italy were largely as expected, in the sense that no one particular party or bloc won sufficient votes to govern. Instead the exit poll results point towards a hung parliament.

According to exit polls, which can be wildly inaccurate, the centre-right alliance, which includes Silvio Berlusconi’s Forza Italia, is set to be the biggest winning bloc. Meanwhile, the anti-establishment 5 Star Movement is set to be the biggest winning single party, whilst the ruling centre left have limped in, in third place.

Populism Alive and Well in Italy

The big take away from these elections has been the extent to which the Italians have fallen out of love with the EU, voting in favour of far right and anti-establishment parties. Sweeping gains by anti-establishment, Eurosceptic parties, such as the 5 Star Movement and the Lega Nord highlight the discontent felt by Italians over high levels of immigration and unemployment in Europe’s third largest economy. All the more surprising given that Italy is one of the founding members of the EU and has traditionally been one of its strongest supporters.

Italy’s domestic issue or a broader reach?

A period of intense negotiations is set to begin late March/ early April in an attempt to form a government. The messy election outcome ensures a cloud of uncertainty will hover over Italy for the immediate future; however, the fact that the euro is remaining buoyant as the fx markets open following the results, whilst the Italian FTSE MIB futures are sinking suggests that investors are viewing this as a domestic issue. For the moment, at least, market participants don’t see any serious threat to the EU or the euro project. However, the continued political uncertainty could damage Italy’s fragile economic recovery, and this is being played out in a large scale sell of in the FTSE MIB futures, currently down some 1.2%

Angela Merkel returning to power offers euro support

The common currency is finding support from political developments in Germany, where the political vacuum stemming from inconclusive election results some 5 months ago, has finally been filled. The SPD voted to back the grand coalition, officially returning Angela Merkel to power. Should EUR/USD break above $1.2350, a move towards $1.2400 could be on the cards.

No exemptions in Trump’s steel tariffs

On the other side of the equation the dollar remains in focus, with further details of Trump’s tariff weighing on sentiment. As more details filter through, it is becoming clear that the tariff is intended for a blanket-like implementation, with no exemptions. Canada, the UK and Europe will all be expected to cough up. Fears over tit-for-tat measures or an all-out trade war are keeping the dollar out of favour.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.