Home Business Btp-Bund spreads and elections: possible alternative scenarios to an FdI-Lega-FI government and implications for the markets

Btp-Bund spreads and elections: possible alternative scenarios to an FdI-Lega-FI government and implications for the markets

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Btp-Bund spreads and elections: possible alternative scenarios to an FdI-Lega-FI government and implications for the markets

On Sunday 25 September Italy will be called to the polls and in all likelihood will be elected as the new prime minister Giorgia Meloni, leader of the Brothers of Italy, which has always been an opposition party, which raises doubts about her ability to juggle Italian institutions and European.

Like this Kevin Thozet, member of Carmignac’s Investment Committee according to which i financial markets focused on inflation concerns and central bankers’ rush to tighter monetary policies in the face of rapidly increasing chances of recession.

In the short term, both the political and economic context should avoid further volatility on the Italian markets, says the expert.

In detail, in the absence of tail risk, the Italian spread is moving in the range of 200-250 bas pointsAnd. Furthermore, the negative views on the Italian (especially) fixed income markets seem to be fairly shared and have also proved quite challenging to implement, with Italian 10-year bonds yielding more than 4%. In the current scenario, therefore, negative positions on core interest rates (rather than peripheral ones) are a better alternative, to reflect the negative impact of persistent inflation, European Central Bank normalization and front-loading. of interest rate hikes.

However, the current trend in Italian spreads could change in the next six months, as political rhetoric could evolve, in the context of a possible winter rationing, poor economic growth and a closer look by the European Commission. In such a scenario, the credibility of the ECB and the Transmission Protection Instrument could be severely tested.

The elections: alternative scenarios according to Carmignac

Finally, the expert describes the possible alternatives to the tripartite alliance described in the basic scenario which include first of all that the Five Star Movement can obtain a better result than expected, in particular in the South, or the centrist alliance between Calenda and Renzi could reserve surprises, which would put the overall majority at risk. Such a result would likely be accompanied by new volatilitygiven the uncertainty associated with the necessary renegotiation process.

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Another scenario sees alone, the Brothers of Italy and the League who have collected a number of votes that does not require the intervention of Forza Italia to form a coalition. The possibility that two of Italy’s less orthodox political parties form a coalition without a more consolidated party could be viewed negatively by the financial markets. This could also lead to a potential political confrontation between two very direct party leaders, whose priorities and political agendas may be opposed (e.g. on pension reform).

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