Ahead is another election night that has much to change.
A referendum on the powers of the Senate could be the first step towards the exit of Italy from the Eurozone. Full of sarcasm and bile political campaign, vote and then stunning result – all of this has become almost customary for traders in forex and bond markets.
After the shocks caused by outcome of the British referendum and presidential elections in the United States, traders around the world are preparing for another sleepless night, December 4th, the outcome of which could again disrupt the political order.
This time in Italy referendum on the reduction of the powers of the Senate is coming, which turned into a trial of the rule of Prime Minister Matteo Renzi and a time bomb for investors, Bloomberg reported.
Over the previous nights in the office, Neil Staines, a head of trading units in a management company ECU Group, already understood what is worth watching:
“To a lesser extent the results of the poll should be learnt, to an increasing degree – the state of the markets, liquidity, painful points”.
This time it is not only shock. All major polls before a two-week period of silence showed that Renzi is little lacking to win. The question is what will happen next.
The volatility in the EUR/USD pair has approached the levels observed only after Trump’s victory, as the markets allow for the possibility that the lesion of Renzi could trigger early elections and would play into the hands of the “Five Stars” movement, which intends to impose a question on the membership of Italy in the Euroarea at the referendum.
Results of voting abroad will be counted if the gap between the votes “for” and “against” is small.
41-year-old Renzi has staked his political future, promising to resign in case of loss.
Euro, which trades will take place during the voting night, fell by 3% in November against the dollar, while Italian bonds fell by 2.5%.
Stock and bond markets are to open on Monday evening. Most traders are worried about the level of liquidity in the market in the early hours of the Asian session: whether there is enough currency for banks to buy and sell after the weekend.
Brokers, including London Capital Group and Saxo Bank shares department, will ask the clients to increase the size of deposit prior to the start of trading, to further hedge against insufficient funds.
In addition, banks will attract more staff. London Capital Group will leave more people at night, and Citigroup will start selling bonds earlier. Lawrence Crosby, head of trading at London Capital Group, says: “We are preparing for the worst”.
According to him, at the time of publication of the first forecasts, everything can be “particularly bad” with liquidity, but additional staff will help make trading conditions “better than on a normal day”.
Nevertheless, the consequences of the Italian referendum will not be as all-encompassing as the results of the referendum on Brexit or Trump’s victory, said Richard Benson, managing director and co-head of portfolio investments in Millennium Global Investments.
Regardless of how many people Italian referendum will attract, for manager of TwentyFour Asset Management, Gordon Shannon, it has become important to follow the policy across Europe:
“A couple of years ago I would have been just going to read the news about the results of the referendum on Monday morning.
But now I’m going to stay awake all night to find out the results. If to do this I need to drink Margarita at two o’clock in the morning, I am ready to pay the price”.