Eq: Dev ex-US
The US and UK have both had revolutionary-level votes this year and both had huge impacts on financial markets and have changed the shape of geopolitics. Our advice to investors is to get ready for another such vote. Italy is preparing for a December 4th referendum on a constitutional reform that would give more power to the PM. However, the vote has turned into a de facto referendum on Euro membership, as PM Renzi has vowed to resign if he loses the vote, which would clear the way for the far right party to sweep to power and call another referendum on the Euro. The polls are running very close, with Renzi just behind as of last week and a quarter of voters still undecided.
FINSUM: If Renzi loses this vote, we think the market’s reaction could be very significant, as it would bring about the first major panic over the viability of the Euro since the European Debt Crisis. We have no insight into how things might go in Italy, but populism and rejection of the status quo seem to be global, so we expect Renzi will likely lose.
Source: Wall Street Journal
The path to the UK’s Brexit just got much more complicated. The country’s PM Theresa May has been operating by the mantra “Brexit means Brexit”, however her plans to take the country out of the EU have just had a wrench thrown in them. In order to start the formal Brexit process, the country must enact what is called Article 50, which May had been planning to do by March. However, a new supreme court ruling in the UK has just found against the government, saying that the British Parliament must have a formal vote before Article 50 can be enacted. The ensuing legal and political mess from this ruling will be immense, but the government is planning to appeal, which should see a final decision in January.
FINSUM: This could now go a lot of different directions, but on the whole, it looks like a small victory for the “remain” camp, as a parliamentary vote could easily turn into a secondary pseudo-referendum.
Source: Wall Street Journal
In what seems to be a major growing issue between England and Scotland, the UK’s PM Theresa May is set to reject Scotland’s calls for a flexible Brexit deal where Scotland would retain access to the EU single market. The country wants to retain access to the EU market even if the UK as a whole leaves. Likewise, London has proposed a special work permit scheme for workers only in the capital. Both demands show that the country’s desire for Brexit varies across different regions. PM May is likely to resist demands for any special exemptions from Brexit. Scotland’s first minister, Nicola Sturgeon, is trying to pull together a “cross-party” coalition to stop the UK from a “hard Brexit”, or one where it loses access to the EU single market.
FINSUM: Brexit is an absolute mess. It is tearing the country apart and no one can agree how to proceed. Stay tuned for more scary headlines.
Source: Financial Times
For those who are unaware, Scotland voted very strongly to remain in the EU during Britain’s June referendum vote. That marked a wide divergence from their English neighbors to the south. Scotland also voted narrowly to remain in the UK in 2014, and now that fragile union appears to be unraveling as the Scottish are taking steps to launch a new referendum to decide on whether they want to join the UK in leaving the EU. Scotland’s first minister, Nicola Sturgeon is putting forth a draft bill to parliament today, which although non-binding, will make it much easier for her to call a referendum if need be.
FINSUM: Scotland is scared of Brexit as a whole and very afraid of a ‘hard’ Brexit. We think that if England presses ahead, Scotland will likely vote to leave the UK.
Here is a fascinating, if tangential article in Bloomberg. It says that a major university study has shown that American workers, on average, put in 25% more hours of work than their colleagues in Europe. This equates to about an hour extra per day on average. While productivity measurements are king in employment studies, having accurate hours worked measurements are fundamental to measuring that productivity. So how do the authors account for the big difference in hours? The answer is a few key reasons: lower taxes in the US giving more incentive, the fact that the range of incomes is wider in the US, which makes a promotion worth more, the fact that labour unions are stronger in Europe, and finally, that pensions are more generous, incentivizing older people to work less.
FINSUM: We found this article an interesting cross-border cultural and structural comparison and thought readers might as well.
One of the best ways to judge whether Italy may actually reject constitutional reform in its vote in December, and thus puts itself on the path towards a Euro exit, could be to follow the money. The EU has a system where it measures depositary flows in and out of various member states’ banking systems. The data seems to indicate that many think Italy is going to leave the Euro. In total €354 bn Euro is now outside of the Italian banking system, up €118 bn from last year, and €78 bn this summer alone. That means a lot of Italian depositors are worried and moving their money out of Italy.
FINSUM: While this data could be interpreted in a number of ways, it seems to surely show that a lot of Italians are spooked.