What is happening in Italy?
The reasons behind this choice likely lie in the polls, which currently give Lega a consensus above 35%, a share that would likely give the party the option to offload 5Stars to form a majority government with right-wing party Fratelli d’Italia and including, if necessary, Silvio’s Berlusconi party.
Salvini though might have overlooked the possibility of a coalition between 5Stars and the left-wing Democratic Party.
This might have been a major mistake.
When a decision was due to be taken to schedule a day for a debate in Parliament, an unusual yellow-red color seemed to emerge in Parliament, as left-wing parties Democratic Party and LeU voted in the same way as 5stars, postponing the parliamentary debate to the 20th of August.
In his speech, PM Giuseppe Conte accused Salvini of following his personal and his party interests, rather than working for the benefit of the country, putting an end to the Government.
His decision has opened different scenarios: from a general election in October, to the appointment of a temporary technical government to govern the country until an early election in early 2020, or even a longer term, unelected technical government which could lead the country for up to 3 ½ years, until the election that was originally scheduled for March 2023.
How is this impacting the market?
It seems clear that the initial reaction of financial markets was positive, Milan’s stock market jumped by almost 2% in the first few hours after the news. Investors are seeing the risk of a right and Eurosceptic government declining, while a coalition M5S+Democratic Party should fall more in line with Brussels, on themes including the Italian deficit. FCA, the Italian car’s giant but also Enel and Eni are gaining ground, while the whole banking sector seems to be receiving a positive boost.
The Italian index is trying to rebound and recovered from 20,000 to 20,800 points.
But with Italian politics, it’s always unwise to assume smooth sailing.
Indeed, inside both the 5Stars movement and the Democratic Party, there are various, colliding currents and new surprises could be just behind the corner.
Carlo Alberto De Casa – Chief Analyst, ActivTrades
This article was originally posted on FX Empire
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