Eq: Dev ex-US
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.
Investors beware, another potentially big market-moving event is in the process of being plopped onto the calendar. Those who pay close attention will have noticed that the Pound has been hammered lately, dropping below $1.20 to a 168-year cumulative low. Now Scotland is reacting, with Nicola Sturgeon, the country’s first minister, announcing a new draft bill to start the process of officially calling another referendum to decide on Scotland’s fate within Britain and thus the EU. Scotland voted strongly to remain in the EU in June’s referendum, and Sturgeon is pushing back against the growing idea that Britain should have a “hard Brexit” as PM Theresa May’s speeches seemed to have called for.
FINSUM: If Scotland has a referendum we believe it will likely choose to leave Britain and try to negotiate remaining within the EU. The European domino to watch, however, is Italy in early December.
Source: Financial Times
We have been warning our readers about Italy for months, as we think it is one of the big risks that the market is currently failing to price. This article seconds that idea, saying it is Italy’s turn to worry bond markets. European bonds have now moved out of the “core vs. periphery” paradigm that prevailed during the European debt crisis, as spreads between Italy and Spain are growing due to the risk Italy poses with its upcoming constitutional referendum. Polls are currently too close to call, but if PM Renzi loses, he says he will resign, which would leave the door wide open to the far-right party sweeping to power and calling a referendum on the Euro.
FINSUM: We are very concerned about Italy at the moment. Things have not gone so bad for the Brits since voting to leave the EU, and we think that will work to further embolden Italians. Faith in the Euro is key to markets, and we think an “Italeave” scenario could cause a lot of wreckage.
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.