The Italian 'non-event' could be a EURCHF event
The political uncertainty in Italy risks pitting Rome against Brussels and the European Central Bank. This tension could express itself via a euro decline versus the Swiss franc.
The bond market is the key indicator for risk-on/risk-off in Italy.
- The uncertainty of the new Italian government's commitment to Europe and the euro.
- The fiscal expansion risk downgrade, higher spreads, and more uncertainty.
- EURCHF correlates well with risk premium on Italian debt in the 10-year (10-year Italy government yield minus 10-year German yield).
- EURCHF has broken down on our long-term monthly model, which uses the 12-month simple moving average (long above, short below).
It seems unlikely that either Di Maio or Salvini will be prime minister (although Five Star still put Di Maio forward...).
According to Politico, the leading candidates are:
• 'Mr. Wolf': Alfonso Bonafede is a Five Star parliamentarian whose name has been floated in Italian media for two days as a potential PM. A close ally of movement leader Di Maio, the 42-year-old Sicilian is a lawyer by training and has built a reputation for being a problem solver, hence the nickname “Mr. Wolf” – a reference to Harvey Keitel's brusque-but-effective fixer in Quentin Tarantino’s Pulp Fiction.
• The shadow man: Vincenzo Spadafora is described by Italian media as the éminence grise of the movement, the kingmaker quietly working behind the scenes. The 44-year-old Neapolitan began his political career in 1998 serving in several left and centre-left administrations. He already has an autobiography called “The Third Italy: A Manifesto For A Country That Does Not Hold Back".
A quick summary of The Five Star Movement and Lega's published programme (sourced primarily from Goldman Sachs' "European Views: an Italian fiscal expansion"):
- Universal minimum guaranteed income to all citizens (cost: €15-30 billion or 1-2% of GDP).
- Reform of tax system (cost: €64bn EUR or 3.7% of GDP).
- Reform of pension system (cost: €15-20bn or 1-1.5% of GDP).
- Cancelling of VAT hikes in 2019, 2021, 2022 (cost: €12.5-19bn or 0.7%-1.1% of GDP).
The macro situation is poor in Italy, which is one of just a few countries in the world not yet back at its pre-crisis GDP.
— Edited by Michael McKenna
Non-independent investment research disclaimer applies. Read more
A compiled overview of Trade Views provided on TradingFloor.com is found here