Eq: Dev ex-US


Italy is not getting the press coverage it deserves right now, and we think investors really need to be aware of what is going on there. In either late November or early December, Italy will hold a landmark referendum on its constitution, deciding whether or not to give the prime minister more power. The vote is being put forward by current PM Renzi, and he has said he will resign if he loses. The vote, therefore, has turned into more of a vote on his popularity than on the underlying question, and that has made things very dangerous. The far-right Five Star Movement (the anti-Euro party) has proved potent in the polls, winning the mayoral seat in Rome, and Renzi and his party are currently losing narrowly in the polls on the referendum.

FINSUM: The reason this is so important is that if Renzi loses, there is a good chance the far right party could easily swing to power and then call a referendum on Euro membership, which could be a real market catastrophe. This is a BIG tail risk, and we think US investors need to be made more aware of it.

Source: Financial Times


Be fearful of the forthcoming Italian referendum. In November (date to be decided), Italians will hold a vote on some wide-ranging constitutional reforms. PM Matteo Renzi has pledged his career on the vote, saying he will resign if the referendum is defeated. The polls are indicating a majority of citizens might reject the reforms, and if he loses, the far-right wing Five Star Movement could sweep to power and call a referendum on Euro membership. This article says that Italian bonds are starting to show anxiety over the vote as investors are now beginninging to demand a yield premium over Germany.

FINSUM: We would like to formally warn investors that this could be a very large issue. If Renzi loses this vote, and the anti-Euro party looks set to come to power, it could spark fears of the disintegration of the Euro, which would deeply trouble financial markets.

Source: Bloomberg


There has been a lot of hype over the last week about the Bank of England’s new quantitative easing programme. However, the programme appears to be stumbling just as it begins because of a key issue—investors are unwilling to let the BOE buy their long-dated bonds. For this first time in the history of doing its QE (which it started in 2009), the BOE failed to reach its stated goal amount at an operation on Tuesday. The problem highlights why the programme as a whole might struggle, as investors are reticent to let go of their long-term bonds because they are the only place one can earn yield.

FINSUM: So negative rates and the search for yield has become so strong that investors won’t even part with their bonds when there is a willing buyer in the market. Will this be a big thorn in the side of the QE programme?

Source: Bloomberg

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