After Matteo Renzi, the Italian Prime Minister, tendered his resignation following a defeat in the referendum vote, the stock market indices in Asia went northward. Asian stocks traded lower on December 5 and the Euro went down to a record 20 month low.
Italian voters were asked whether they supported the changes made to the constitution. The reform of powers which exists between state, administrative entities and regions were shot down. Renzi and his Democratic Party which is of center-left political disposition put forward the bill. The economy of Italy, the third biggest in the Eurozone, is down into political chaos.
The Euro crashed to new lows as voters replied in the negative to the referendum. Investors, already spooked by Britain’s decision to exit the European Union, are now flummoxed as they feared that the troubled banking environment of Italy may further descend into chaos.
The markets have been shocked by the margin of Renzi’s defeat. It could only lead to further crisis and political turbulence within Italy. The country is heavily indebted and suffers a fragile banking system. According to Marie Owens Thomsen of Indosuez Wealth Management, analysts believe that a caretaker government will be established before Christmas. They also believe that no new elections will be held prior to 2018.
Canny analysts, however, had priced in such an eventuality. According to Minori Uchida of Bank of Tokyo-Mitsubishi, the “no” referendum was predicted by many in advance and thus it is not expected that the euro will suffer a freefall in the near term. However, Uchida, who is the chief currency analyst of the bank, said that this event will delay much needed progress in the efforts made by Italy to get rid of the bad debt made by its banks. This event, Uchida opined, will in all probability widen yield spread of the Italian bonds and German bunts.
The FTSE 100 on December 2 closed about 0.33 percent lower to touch 6,730.72. The Standard & Poor Index, however, closed at a 0.04 percent higher to reach 2,191.95. In case of commodities, oil prices fell after surging during the last week of November. It seems that effects of the oil output deal reached by OPEC has already worn off. The WTI crude oil traded about 0.91 percent lower to touch $51.21 per barrel. Brent crude was also trading about 0.84 percent lower to about $54 per barrel.