What the markets say in view of the 2022 Italian political elections on Sunday 25 September? What is the effect of the imminent end of the Draghi government and the prospect of a center-right in power, ready to take shape with a Meloni government?
The message from the big names in finance, Goldman Sachs included, to the leader of the Brothers of Italy Giorgia Meloni is essentially the following: No tax cuts, yes #PNRR #Draghi.
But let’s look at the message that comes directly from the numbers: the table drawn up by Finanzaonline on the basis of data provided by Bloomberg indicates that, from the day of Mario Draghi’s fall, which dates back to last July 21, the Piazza Affari Ftse Mib index rose by 3.55%, against the decline of -3.67% and -3.58% respectively of the EuroStoxx 50 and the Wall Street benchmark index, the S&P 500.
The benchmark sub-index of Italian banks, the Ftse Italia All Share Bank, increased by 13.91%. Regarding the spread BTP-Bund, Italy risk thermometer, the change was insignificant: the differential has risen to 226 points, from the 212 points of July 21 last year.
The case of 10-year BTP rates is different, which jumped well above the 4% threshold, to 4.17%, compared to 3.31% on the date that certified the end of the Draghi government. This means that the disaster feared by several traders, due to the imminent demise of the Draghi government, has not materialized.
Has Ftse Mib already priced the risk of elections?
How can we interpret this calm manifested by the asset del made in Italy? In general for Piazza Affari, and in particular for the Ftse Mib index, what is highlighted by the strategist di Bloomberg Intelligencenamely the fact that the forward price-to-earnings ratio, equal to 7.5suggests that significant risks, ahead of the markets, have already been priced. 
On the other side, the increase in the spread beyond 200 indicates that there is some skepticism on the part of the markets about what will happen in the post-election phase.
Elections: investors uncertain but no panic in the short term
A Bloomberg article collects the comment of some analysts, premising that, “in the 18 months of Mario Draghi’s leadership, Italian markets have gained some of that much-needed confidence. As a result, the end of his term as prime minister adds to the growing list of domestic asset concerns. “
The authors of the Bloomberg article, Michael Msika and Chiara Remondinipoint out that “For Sunday, the day of the Italian political elections, it is widely expected a victory of the center-right coalition, a factor destined to bring new uncertainty among investors, who are already afraid of rising interest rates, the energy crisis and the potential arrival of a recession. Such an outcome (or the victory of the center-right of Fratelli d’Italia-Forza Italia-Lega) – it is underlined – could fuel doubts on the path of reforms (see Draghi’s PNRR)a condition to be fulfilled for the country to receive EU funds and speed up its post-pandemic recovery ” Covid-19.
“We anticipate an increase in volatility in the Italian stock market (therefore on the Milan stock exchange), however without reaching extreme peaks in view of the elections of 25 September and in the days immediately following – he commented to Bloomberg Fabio Caldato, partner at Olympia Wealth Management – Our fears are for the medium term: the next government will face a difficult autumn and social tensions are likely to emerge ”.
Ipek Ozkardeskaya, senior analyst at Swissquotebelieves that political risks will put pressure on the Italian bond markets, and stresses that any widening of the BTP-Bund spread could also weigh on the euro, whose decline is “Something that this year did not bode well for European actions in general”.
Bloomberg points out that “So far, the markets have been relatively optimistic about the risk of elections, and this is because the leaders of the center have moderated their tone during the electoral campaign. Giorgia Meloni, who is considered the most likely to take up the position of Prime Minister, said she agreed to work constructively with Brussels “.
In this regard, the same chief economics advisor di UniCredit Erik F. Nielsen is optimistic about the possibility of Draghi’s full reform program being implemented – a prospect that he believes would be a “good news” for the Italian financial markets.
Sven Jari Stehn, economist at Goldman Sachs, However, he warns that since a government is unlikely to be formed before the end of next month (October), it will take a while to know if the new executive will have passed the greatest test. Goldman Sachs’ message is as follows: the games will definitely not be done on September 25th. The name of the winner will certainly be known, but it will be too early to understand who, for example, the next key ministers may be, first and foremost who will lead the Ministry of Economy and Finance.
Elections: attention to spreads and effect on banks
How will all this reflect on the bag, in particular on the Ftse Mib?
Bloomberg recalls that “banks and insurance companies they tend to move often in line with the trend of the BTP-Bund spread ”and that“ the differential could be sensitive to the outcome of the vote ”.
A widening of yields, it is explained, “could weigh on financial stocks, which make up almost 30% of the Ftse Mib index “.
Beyond the main price list, of course, “The Monte dei Paschi case will be particularly monitored”.
They are also done the names of Intesa SanPaolo and UniCredit, sensitive to the BTP-Bund spread, which could precisely react to the outcome of the elections.
That said, Italian banks and other Italian companies “Could offer interesting opportunities for investors who foresee a new escalation of Italy risk following the elections, in view of the budget law for 2023 which must be drawn up in the face of a fiscal room for maneuver that appears very limited, also considering the need to provide energy-related aid (against the #caroenergia #carobollette) and the upside risks affecting the debt-to-GDP ratio “, they point out Goldman Sachs strategists, including Cecilia Mariottiof the Portfolio Strategy Research Division at Goldman Sachs.
The Ftse Mib on the other hand, it is at a discount compared to other European exchanges, a factor which, in itself, assists equities.
Elections: Meloni’s plans on energy and Tim
Bloomberg highlights that energy companies and utilities account for approximately 28% of the Ftse Mib, a factor that makes the price list potentially sensitive to the measures adopted at local level (therefore in Italy) or by the European Union to address the issue of the jump in energy prices. In this sense, it is recalled that, last May, the Italian government has raised the tax on extra profits collected by the energy industry from 10% to 25% and that Eni has already announced that it will pay an extraordinary tax of approximately € 1.4 billion.
Meloni reported that, in the event of a government seeing her as Prime Minister, she would take the unilateral decision to separate electricity costs from gas prices, if the European Union did not accelerate the pace towards a joint effort.
Great attention with the upcoming new government will also be given to state-controlled companies:
announcements on who will be the next CEOs to lead them are expected next spring and the focus will be on titles such as Enel, Eni, Terna, Poste Italiane and Leonardo.
“A possible Meloni government it could have a more invasive impact on the economy and on state-controlled companies “ also with regard to the so-called Golden Power procedure, aimed at safeguarding strategic assets, as he pointed out Matteo Brancolini, fund manager of BPER Banca in Milan.
After the vote, the question of an agreement may also arise the combination of Rai Way’s assets with those of ET Towers, as well as not a few news, Bloomberg underlines, could concern Tim, with Cassa Depositi e Prestiti which could present an offer (watch out for the shot of the title in today’s session of Piazza Affari linked to some market rumors)
Separately, Fratelli d’Italia di Meloni is promoting a plan for a delisting of Telecom Italia and to sell the TLC company’s assets in order to cut its debt by more than half.
It certainly cannot be said that the markets are calm, in view of these Italian political elections of 2022. But from what the financial big names say, if particular turbulence has not yet occurred, both on the stock market and on the fixed income of Made in Italy , it is because Giorgia Meloni has not yet made any announcements from the government spend and spread.
Those who did Matteo Salvini, leader of the League. At the same time, the recent back-and-forth on the budget gap indicate how a bone of contention, in a hypothetical Meloni government, has already been born.
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