Italian stocks, bonds and the euro fall after Prime Minister Mario Draghi resigned after three large parties failed to back him in a confidence vote, ending a period of political stability and likely heralding snap elections. With Italian bond yields rising, the political uncertainty complicates the European Central Bank's plans for an anti-fragmentation tool. The following is a selection of comments from analysts and asset managers.
Euro Turns Lower Vs Dollar After Italian PM Resigns
0943 GMT - The euro turns weaker versus the dollar after Italian Prime Minister Mario Draghi confirmed his resignation, paving the way for snap elections. Spreads between Italian and German bond yields widen, weighing on the euro, while the dollar is supported by safe haven flows after the news. Draghi's departure, which comes after three key parties failed to back him in a confidence vote, is expected to lead to early elections that could take place as early as late September. "An early election in Italy could be negative for the euro in that it would increase instability in the bloc's third-largest economy," BDSwiss Group analyst Marshall Gittler writes.EUR/USD falls 0.1% to 1.0170. (renae.dyer@wsj.com)
Italian Stocks Slide on Political Uncertainty
0903 GMT - Italian stocks fall sharply as Prime Minister Mario Draghi resigns, ending a period of political stability and likely heralding snap elections. Italy's FTSE MIB index falls 2.4% to 20839.98, easily underperforming the Stoxx Europe 600 index, which falls 0.3%. The FTSE MIB in Italy is trading sharply lower as the political crisis weighs, Victoria Scholar, head of investment at Interactive Investor, says in a note. Draghi won a confidence vote in the Senate, but only with mass abstentions. Financial stocks are the biggest losers, with Poste Italiane and Banco BPM down 7.2% and BPER Banca losing 5.6%. Telecom Italia slides 5.9% and aerospace company Leonardo loses 5%. (jessica.fleetham@wsj.com)
Collapse of Italian Government Likely to Lead to Snap Elections
0817 GMT - Given the poor relations among former coalition partners in the Italian cabinet, there seems to be no room left for another attempt to form a national unity government, ING's senior economist for Italy Paolo Pizzoli says in a note. President Sergio Mattarella will then have little alternative but to dissolve parliament and call snap elections, he says. As PM Mario Draghi wasn't voted down in parliament, he will likely be called to run the government for ordinary affairs until the elections, Pizzoli says. In the short-term, the parties which decided to pull the plug will have a hard time explaining to their electorate why such a decision was made at such a difficult economic and geopolitical moment, he says. (maria.martinez@wsj.com)
Italian Politics Complicates ECB's Anti-Fragmentation Tool
0751 GMT - The outcome of Italian political developments might add further confusion to the European Central Bank's anti-fragmentation tool that is clearly not aimed at reducing political risk, Annalisa Piazza, fixed-income research analyst at MFS Investment Management writes in a note. "In the meanwhile, the ECB will be in a very uncomfortable situation when the downside risks for Italy's growth...will spill over into other Eurozone economies," she says. The end of Italian Prime Minister Mario Draghi's government seems to be now the baseline scenario, and this outcome is possibly the worst outcome of the crisis that started last week, Piazza adds. The BTP-Bund spreads are likely to suffer some widening trend in coming weeks, she says. (emese.bartha@wsj.com)
Draghi's Departure From the Political Scene Will Be Negative for Italy and the EU
0726 GMT - Italian Prime Minister Mario Draghi will likely confirm his resignation, after Lega and Forza Italia abstained from a crucial vote of confidence, Barclays says in a note. "Draghi's departure from the political scene will be negative for Italy and the European Union," Ludovico Sapio at Barclays says. President Sergio Mattarella could dissolve the Chambers of Parliament over the coming days, launching the process leading to early election and the elections could take place in early October, according to Barclays. President Mattarella could still verify the existence of an alternative majority, but Barclays says it will be politically difficult and therefore highly unlikely. (maria.martinez@wsj.com)
Italian Banks' Shares Under Pressure Amid Political Turmoil
0725 GMT - Shares in Italian banks open sharply lower amid political uncertainty in the country. Intesa Sanpaolo trades 4.1% lower, UniCredit falls 4.7%, Mediobanca drops 2% and Banco BPM is down 3.8%. Italian Prime Minister Mario Draghi will likely resign, putting an end to a national unity government that lasted almost one and a half years. He won a confidence vote in the Senate, but mass abstentions indicated he no longer has the support of a majority of parliament. "Draghi's resignation means early election in fall in Italy, and political chaos at least until then," Swissquote analyst Ipek Ozkardeskaya says in a research note. This will add another layer of stress for the European Central Bank, which is struggling to contain eurozone bond yield spreads, she says. (cristina.roca@wsj.com; @_cristinaroca)
Ten-Year BTP-Bund Spread Could Widen to 250-275Bps in Snap Election
0720 GMT - A snap election in Italy could take the 10-year Italian BTP-German Bund yield spread to 250-275 basis points, with the front-end of the Italian bond curve being even more vulnerable to credit risk pricing, Citi's rates strategists say in a note. An election seems most likely now after three parties withdrew government support in a confidence vote for Prime Minister Mario Draghi's government, even as Draghi won the vote. "This [Italian backdrop] ups the ante for the European Central Bank, set to unveil the anti-fragmentation tool today, which, however, is unlikely to address such idiosyncratic risks and also only target spread volatility, not spread levels," Citi's strategists write. The 10-year BTP-Bund spread trades 15bps wider at 229 bps, according to Tradeweb. (emese.bartha@wsj.com)
Euro Rises as ECB Expected to Lift Rates, Nord Stream 1 Resumes Gas Flows
0709 GMT - The euro rises ahead of an expected interest=rate rise by the European Central Bank while the operator of the Nord Stream 1 gas pipeline said it's in the process of resuming flows. The pipeline, which delivers Russian gas to Germany, was scheduled to reopen Thursday after maintenance but there were fears of a complete cutoff. The ECB, which announces its decision at 1215 GMT, expects to start raising rates 25 basis points but a 50bp move is reportedly being considered. However, the prospect of an early Italy election will add another "layer of stress" for the ECB, which is already struggling to contain divergence between eurozone bond yields, Swissquote Bank analyst Ipek Ozkardeskaya writes. EUR/USD rises 0.3% to 1.0212. (renae.dyer@wsj.com)
Draghi Leaves Reforms Unfinished, Italian Debt Seems
0653 GMT - The risk of snap elections in late September or early October has risen substantially in Italy, after three major coalition parties refused to back Italian prime minister Mario Draghi in a confidence vote Wednesday, Berenberg's Holger Schmieding says in a note. Draghi tried hard to streamline bureaucratic and judicial procedures to make the country a better place to invest and create jobs, but this task remains unfinished, according to Schmieding. Whereas other countries have raised their trend rate of growth and hence their likely future tax revenues sufficiently to make their debt burdens sustainable, Italy hasn't yet implemented enough pro-growth reforms. "The long-term sustainability of Italy's public debt burden of almost 150% of GDP is far from assured," Schmieding says. (maria.martinez@wsj.com)
Italy's Govt Crisis Highlights Importance of ECB's Anti-Fragmentation Tool
0654 GMT - The importance of an anti-fragmentation tool from the European Central Bank comes into focus amid significant political turmoil in Italy, Deutsche Bank's strategists write in a note ahead of the ECB's policy meeting on Thursday. Italian Prime Minister Mario Draghi's government is on the verge of collapse after three parties--the League, Forza Italia and the Five Star Movement--failed to back him in a Senate confidence vote. "The latest moves raise the prospect that Draghi could resign again after his attempt last week was rejected by the President, which in turn brings the possibility of early elections into view," analysts at Deutsche Bank say. (emese.bartha@wsj.com)
BTP-Bund Yield Spread Widens as Italian Government Crisis Unfolds
0632 GMT - The 10-year Italian BTP-German Bund yield spread trades widens sharply amid Italy's unfolding government crisis, after Prime Minister Mario Draghi won a confidence vote on Wednesday, but in mass abstentions by three large parties. "Risks are high that there will be a snap election, most likely in September but the timing is problematic since the budget and the payout of EU's support program are planned to take place during the autumn," Olle Holmgren, SEB's chief strategist for Sweden, says in a note. He adds that the importance of the European Central Bank's anti-fragmentation measures is rising. The 10-year BTP-Bund yield trades 23 basis points wider at around 237bps, according to Tradeweb. (emese.bartha@wsj.com)
$(END)$ Dow Jones Newswires
July 21, 2022 05:54 ET (09:54 GMT)
Copyright (c) 2022 Dow Jones & Company, Inc.
Comments