Italian Election landing

 

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What will be the final outcome?

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Scenario analysis

The scenarios after the electoral round of Sunday 4th March can have different outcomes, according to the polls the 5 Stelle movement could be the most popular party. However, the center-right coalition could benefit from the new electoral law. Will the democratic party manage to turnaround the situation?

luigi-blue-440x440.jpgM5S
Luigi di Maio

Luigi di Maio, born in 1986, is currently vice-president of the Deputies' Chamber. He's been in the '5 Stelle' movement since 2007 and in March 2013 he's become the youngest vice-president of the chamber in the Italian Republic history.

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matteo-blue-440x440.jpgDemocratic Party
Matteo Renzi

The Democratic Party started the election campaign poorly with the lowest consensus in history with only 24%. In 2013, the party recovered many votes until they got the majority. Will they be able to repeat the same coup five years later?

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berlusconi-blue-440x440.jpgForza Italia
Silvio Berlusconi 

salvani-blue-440x440.jpgLega
Matteo Salvini 

Salvini will probably take the Lega to it's best electoral result ever. On the other hand, the objective of Berlusconi's party is to obtain more support than it's "Frenemies" from the Lega and to rally the centre-right coalition with the other parties.

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Polls

This graphs shows the latest polls' progress in regards to voting intentions of the Italian electorate.

 

 

 

5 Stelle Movement: no longer anti-Europe as it used to be
Despite the disappointing result of the administrative elections in June and the polemics linked to the government of the city of Roma, the consensus for M5S remains high. The new electoral law's approval doesn't benefit this party which must collect maximum votes to prove it's worth.

The impact on markets
Following the greatest European cohesion that's emerged in the recent years, following the result of elections in other european countries, and following the last local elections in June 2017, the Movement changed approach significantly. The impact on markets is above all related to the uncertainty due to the (almost) impossible alliances that the Party will bring forward to approach the 40% threshold and also the inexperience of the Movement itself, especially in the current European context.

Potential risk for investors
The greatest uncertainty is mainly linked to the historical euro-skeptical position of the movement, even if a strong reversal was made against the single currency. A depreciation of the Euro, accompanied by an increase of yields in government bonds, is the most probable solution if M5S wins.

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EURO DOWN

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SPREAD BUND-BTP UP

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VOLATILITY UP

 

Matteo Renzi, Democratic Party Secretary
After the resignations in December 2016, following the 'personal defeat' for the constitutional referendum, the former Prime Minister tries a come back. His previous government lasted 1000 days, where the Italian situation has certainly improved, but perhaps not enough. Paolo Gentiloni, currently leading the Government, has recently obtained many votes and his role remains key within the Party. The same Gentiloni has ruled out any possible alliance to form a coalition with the center-right after the next elections. Thanks to his work, the Italian growth estimates provided by the International Monetary Fund rose to 1.6% for 2018 (from 0.7% previously).

The impact on markets
Another victory for the Democratic Party (PD) would provide more continuity on the Italian political scene, but the problem of gaining a majority remains. In addition, this party has lost support in the last few years, so the markets will only feel optimistic if the Democratic Party was confirmed as the main party with a significant improvement in support compared with the start of the election campaign.

Potential risk for investors
Today, uncertainty remains one of the most probable situations even after the elections; this would result in an interim government without a majority remaining in place, as we have seen many times in Italy’s history. The difference, however, will lie in the distribution of the seats. The Renzi-Gentiloni duality could be dangerous for the party. The centre-left also includes: Emma Bonino’s “Più Europa”, Beatrice Lorenzin’s “Civica Popolare” and “Insieme” (Greens and Socialists).

In our view, the continuity of the government could make the markets less nervous, and, in light of the coalition’s greater openness to Europe, result in a stronger euro.

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EURO UP

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VOLATILITY STABLE

 

The centre-right: Forza Italia & Lega
The balance between the two main parties on the Italian right has changed significantly in the last 12 months; in particular, Forza Italia has regained ground, and is more open to dialogue with the PD over a possible new grand coalition government (an idea that the PD’s Gentiloni has ruled out, however). The centre-right coalition is much broader, and also includes “Fratelli d’Italia” (with Giorgia Meloni) and “Noi con l’Italia-Udc”, the Christian democrat list (with Raffaele Fitto and Lorenzo Cesa).

The impact on markets
In the absence of sensational surprises (nearing the impossible), neither of the two parties will obtain the most support, but the coalition is expected to win a high number of preferences.

Potential risk for investors
The markets have obviously not forgotten the crisis of the Berlusconi government of November 2011, when Italian two-year government bond yields exceeded 9%. Forza Italia has never shown itself capable of finding an alternative to Silvio Berlusconi. Following the defeat in Europe of anti-European movements, the Northern League (Lega) has changed its tone, but its anti-immigration policy remains its cornerstone.

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VOLATILITY UP

 

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