Markets view Renzi referendum as ‘Italian issue, not a wider Eurozone one’


Markets have had a muted response to Italy’s referendum result, which rejected Prime Minister Matteo Renzi’s constitutional reform proposals that would have diluted the power of the Senate.

Renzi resigned last night as the results showed 59 per cent of the electorate voted against the measures.

The euro is currently $1.0634, a fall of 0.3 per cent, while the FTSE Milano Italia Borsa had risen 0.4 per cent in morning trading.

Troubled Italian bank Monte dei Paschi has edged into positive territory having fallen 5 per cent in early trading.

Architas investment director Adrian Lowcock says markets have taken the result in their stride and the result is currently seen an Italian issue, not a wider Eurozone one.

Shares had already eased off last week in anticipation of the vote and the ECB has indicated it is willing to buy more Italian bank bonds to provide support, Lowcock says.

Neuberger Berman Global fixed income portfolio manager Jon Jonsson says the most worrying outcome from the result is on the ailing Italian banking sector.

UniCredit, Banca Popolare and, in particular, Monte dei Paschi di Siena have been under intense pressure all year due to their non-performing loans, Jonsson says.

“In the short term, yields on Italian government bonds are likely to soar while spreads against other major European bonds will continue to widen. Volatility will increase, not just in Italy but across Europe.

“Further down the road, there is also the possibility that Italy could be downgraded by the ratings agencies, precipitating a rise in its borrowing costs.”

However, Jonsson says it is important to remember that the referendum was not about Italy’s continued membership of the European Union – even though it has been interpreted as such in many quarters.

“More generally, Europe has struggled to deal with stagnant economic growth, foreign policy issues and the migrant crisis, but we still believe that in time it will deal with them. Indeed, our base case scenario is that Europe will continue to recover, albeit very slowly.”