Eq: Dev ex-US

(London)

We don’t cover the Brexit saga very much, mostly because it doesn’t seem to have a great deal of relevance to the US. However, interesting news is out today: the UK’s Labour party is trying to get a second Brexit referendum going. The political details are complicated, but the general plan is to derail the government’s current Brexit plan, and then hold a general election that could work as a replacement for the first Brexit result. A Labour party’s spokesman says that it is a “sequenced, structured” strategy.


FINSUM: We have maintained throughout this saga that the UK should not leave the EU. It is still going to have to be heavily involved with the EU for economic and political reasons, and if it leaves it will simply go from a rule-maker to a rule-taker.

(Rome)

The big recovery after the huge losses in Italy might finally be underway. While downward pressure on Italian assets had subsided, there is now a big rally happening. The catalyst is that the country’s finance minster has just pledged that Italy will stay in the Euro, helping ease the market’s largest worry about the political crisis in Rome. The minister also pledged to avoid financial instability.


FINSUM: Italy’s two-year bond has already seen its yield fall 100 bp! That is quite a response. To be honest we doubt this pledge amounts to much, but it is good signaling for the market.

(Rome)

Well it just happened. The two alternative Italian parties—the Five Star movement and the League have just formed a coalition government to govern Italy. The new PM of the country will be Conte, a very inexperienced politician who comes from a legal and academic background. According to the WSJ, “Matteo Salvini, the 45-year-old leader of the League who pledged to deport hundreds of thousands of illegal immigrants, will become interior minister”.


FINSUM: There is now a strongly anti-Euro and anti-EU government in power in Italy. A default and a devolution to the old Lira are entirely within the realm of possibility.

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