Market reaction to Italy’s elections

Market reaction to Italy’s elections

MILONE (Reuters) – Georgia Meloni looks set to become Italy’s first female prime minister to head the most right-wing government since World War Two, after leading a conservative coalition to victory in Sunday’s election.

Here are some initial reactions from market watchers:

Luca Casolani, Head of Strategic Research; Lordana Maria Federico, Head of Italian Economy, Unicredit

โ€œWe expect a somewhat muted market reaction in terms of the credit spread of BTPs in the short term, as the election result was broadly in line with expectations. Some short covering possible given the election of investors entering moderately short BTPs and as the risk scenario for a victory priced in overwhelming by the right. We continue to expect the 10-year BTP-Bund spread to trade near 250 basis points through the end of the year.โ€

Domenico Gilotti, Analyst, Equita

โ€œFrom a market point of view, we expect the spread of the BTP-Bund to stabilize around 230-250 basis points while we wait for the market to assess the composition of the government and budget law, unless there is a change of tone from a new government or a significant deterioration in the overall environment.

“High inflation in both 2022 and 2023 leaves some room to keep the debt/GDP ratio in check (higher tax returns that offset higher borrowing and pension spending costs).”

Giad Gianni, Economist, CITI

“A clear victory for one coalition makes it more likely that the next government will last longer than the last. It also speeds up the formation of the new government, possibly before the end of October.”

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โ€œMeloneyโ€™s first major decision would be to appoint the finance minister, with a pro-European and fiscally cautious figure seemingly a likely option at the moment. We do not expect an immediate push for significant fiscal easing, but we see the risks end in the medium term in which the rightโ€™s policy agenda will conflict with European Union objectives.

LORENZO CODOGNO, Head of Economics, LC-MA

โ€œThe role of Forza Italia may be crucial for the centre-right alliance, and therefore provides some guarantees on international alliances and the attitude towards Europe.

โ€œThe Democratic Party has weakened significantly, while the Five Star Movement scores well compared to the polls. Overall, despite some minor but significant shifts, it has not been a huge surprise. The first steps of the new alliance will be crucial to knowing whether the reassuring signals are certain or not. No. However, many questions remain unaddressed.โ€

Giuseppe Selling, Fund Manager and Strategist, Antilia Capital Partners

“No big surprises. I expect a relatively small impact given that the League, the least pro-European party, appears to have come out weak.”

โ€œRight now, the market seems to be moving more into macroeconomic issues. If we see a penalty for Italian assets, it could be because of the elections, but basically… Italy is a (worrisome) publicly financed country, no matter who is in the government.โ€

โ€œThe market knew that this was how it would turn out and would remain at this point focused on economic growth and tightening of monetary and fiscal policy, which remains a slippery slope for Italy.โ€

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