According to analysts from Danske Bank, the next political risk event in Europe is the Italian parliamentary elections on March 4. They see high uncertainty about new government composition and also a limited risk of the Italian election arising as a key market theme in contrast to last year’s French election.
Key Quotes:
“The next political risk event on the agenda in Europe is coming closer with the Italian parliamentary elections on 4 March 2018. However, so far market sentiment has remained fairly complacent, which we think is adequate as the election will be mainly a domestic risk event and given the low risk of Italy actually exiting the euro even if the euro-sceptic Five Star Movement, which is leading in the polls, comes to power.”
“Irrespective of the governing coalition formed after the election, we do not expect the new government to undertake the necessary structural reforms to kick-start the Italian economy, meaning that Italy will remain the ‘weakest link’ in the Eurozone. Most parties are also running on a platform to increase fiscal spending, heightening investor concerns about debt sustainability and potential clashes with the European Commission.”
“We assess the risk of a Eurosceptic government as very small and even in this case expect ITExit discussions not to be a first priority. Eurosceptic parties such as the Five Star Movement and Northern League have recently toned down their rhetoric on the topic and do not advocate an immediate euro exit referendum anymore in order to appeal to centrist voters.”
“The low ITExit risk is also apparent in current market pricing. Demand for Italian debt has been strong since the repricing in December and early January and Italy is still supported by the ECB’s QE programme and the significant carry. For the FX market, we also see only a limited risk of the Italian election arising as a key market theme in contrast to last year’s French election. EUR/USD in our view currently incorporates only a minimal political risk premium and as we do not see the Italian election as a big event risk for EUR spot rates, it adds to our view that any dips in EUR/USD will be shallow and short-lived.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD falls to six-month lows below 1.2550, eyes on US PMI
GBP/USD extends its losses for the third successive session and trades at a fresh fix-month low below 1.2550 on Friday. Disappointing PMI data from the UK weigh on Pound Sterling as investors await US PMI data releases.
Gold price refreshes two-week high, looks to build on momentum beyond $2,700 mark
Gold price hits a fresh two-week top during the first half of the European session on Friday, with bulls now looking to build on the momentum further beyond the $2,700 mark. This marks the fifth successive day of a positive move and is fueled by the global flight to safety amid persistent geopolitical tensions stemming from the intensifying Russia-Ukraine war.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.