VIEW Market reaction to Italian election result

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MILAN, Sept 26 (Reuters) – Giorgia Meloni is set to become Italy’s first female prime minister to head her most right-wing government since World War II after leading a conservative alliance to triumph in Sunday’s election. Read more

Here are some of the early reactions from market watchers:

EQUITIES: Italy’s FTSE MIB blue-chip index (.FTMIB) rose 1.3% in early trading before erasing gains.

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BONDS: Italian bonds slightly underperformed their peers on Monday, pushing the Italian-German yield spread to a two-week high of 238 basis points. It last traded at 236 basis points.

NICOLA NOBILE, ASSOCIATE DIRECTOR; PAOLO GRIGNANI, SENIOR ECONOMIST, OXFORD ECONOMICS

“The election results did not deviate from the voting intentions. It is mainly for this reason that we do not see violent shocks in the markets, which, in line with our base scenario, believe that the election promises, which , if implemented, would endanger Italian accounts, will be reduced or discontinued during the term of the government.

“Risks remain in this area if the new right-wing government turns out to be less cautious than expected.

“We had pinned some hope on Draghi’s reform program to chart a better growth trajectory for Italy, although we did not see it as our central scenario. However, given that the right-wing coalition has not has not emphasized structural issues in his election campaign or his manifesto, we doubt that he will implement the necessary reforms.”

LORENZO BATACCHI, PORTFOLIO MANAGER, BPER BANCA

“On the equity front, I expect – perhaps not in the short term – changes at the head of some public companies like Enel and Leonardo but not others like Eni, which is extremely important at the moment, or Post.

“The markets are not reacting to politics, it was expected. The weaker than expected performance of the League and Forza Italia (parties) could perhaps contribute to the stability of the future government of Meloni, but we will see it with time.”

LUDOVICO SAPIO, ECONOMIST, BARCLAYS

“In the short term, we believe that the risks of tensions are modest, but could intensify in the medium term. The government’s first priority will be the completion of the 2023 budget law. Given the limited time available for its completion, we believe that the center- The good government may have to rely on the draft budget projections that the Draghi government will present by the end of the month.

“In the medium term, we expect a centre-right government to bring a looser fiscal stance and a higher risk of friction with the EU. In (a recent report), we quantify the fiscal impact of measures included in the centre-right manifesto around 30 to 70 billion euros (1.5 to 3.9% of GDP), including tax offsets; however, these will probably be implemented over time time.

“The finalization of some politically controversial reforms of the NGEU (eg justice reform, competition law) could also be at risk, as these reforms have faced active opposition from the Brothers of Italy in parliament.

ALVISE LENNKH-YUNUS, DEPUTY DIRECTOR OF SOVEREIGN AND PUBLIC SECTOR RATINGS, SCOPE RATINGS

“Important next steps to watch over the next few weeks are coalition negotiations, ministerial appointments, in particular for the finance and economy portfolio, and discussions with the European Commission, in particular on likely marginal changes. of the NGEU recovery plan for Italy, the associated reforms and the disbursement of funds.”

FILIPPO MORMANDO, MACRO STRATEGIST & SOVEREIGN EUROPEAN, BBVA

“The absence of any major surprises in the outcome should arguably reduce the risk of any major shifts in the markets’ approach to construction, at least as a first (two-way) response.

“Longer term, the medium term outlook has not changed after the election: in our view, spreads are still trending slightly higher. From this perspective, one of the most relevant drivers for bonds Italian bonds (and more generally for peripheral bonds) will be the net change in the supply/demand balance for sovereign paper, which should lead to an increase in net recourse to the market to finance the budget deficit and, on the other hand, to the general pressure on the real yield component of European rates.”

CHRISTOPHER DEMBIK, HEAD OF MACRO ANALYSIS, SAXO BANK

“The new government will have to scramble to draw up a new budget for approval by the Italian parliament and the EU. Populist pressures could see the new government call for significant deficit spending which former Prime Minister (Mario) Draghi has refused to ‘consider.”

“Meloni has promised to reverse some of the reform measures introduced by Draghi, a move that could risk the EU withholding part of the €200 billion in extraordinary EU pandemic budget funds earmarked for the EU. Italy. This could increase tensions in the market, but it is far from certain that panic will ensue.

ALESSANDRO TENTORI, INVESTMENT DIRECTOR FOR ITALY, AXA INVESTMENT MANAGERS

“There is some widening in spreads but that’s nothing serious, also because we’re seeing upward movement in all interest rates. Now let’s wait for the list of ministers and see if there’s critical issues.

“The weakness of the League could work in favor of the Brothers of Italy and a government more aligned with Brussels than a strong League might have wanted to put in place controversial ministers. (The weakness of the League) could therefore be a positive signal for the markets.

“Today’s upward move is a continuation of the market reaction seen on Friday after the UK mini-budget and also sounds like a warning to eurozone countries.”

MATTEO RAMENGHI, DIRECTOR OF INVESTMENTS, UBS WM ITALY; THOMAS WACKER, DIRECTOR OF CREDIT, UBS

“Italian government bond risk premia have more than doubled from their pandemic lows and are trading around 230 basis points against German 10-year Bunds.”

“We believe that investors in short to mid-term Italian bonds are well compensated for the risks arising from Italy’s heavy public debt burden and recurring bouts of political uncertainty.”

“While the ECB is unlikely to intervene directly in response to moderately wider deviations, we believe it would ultimately act to curb substantial distortions as long as Italy remains in line with the EU. on fiscal fiscal policies.”

PETER MCCALLUM & EVELYNE GOMEZ-LIECHTI, TARIFF STRATEGISTS, MIZUHO

“(Giorgia) Meloni’s spending plans look worrying at first sight and could put further pressure on the euro in the near term, but ultimately EU and ECB TPI conditionalities should discipline the euro. Italian treasury and provide a safety net in case a BTP-Bund explosion spreads. Meloni’s political agenda remains to be clarified, which is another risk to watch.”

LUCA CAZZULANI, HEAD OF STRATEGIC RESEARCH; LOREDANA MARIA FEDERICO, CHIEF ITALIAN ECONOMIST, UNICREDIT

“Short coverage is possible given that investors have entered the BTP election moderately short and the risk scenario of a landslide right-wing victory is being assessed. We continue to expect the BTP gap to – 10-year Bund is trading near 250 basis points through year-end.”

DOMENICO GHILOTTI, ANALYST, EQUITA

“From a market perspective, we expect the BTP-Bund spread to stabilize around 230-250 basis points as the market assesses the composition of the government and the finance law, unless whether there is a change in tone from the new government or a marked deterioration in the macroeconomic environment.

“Higher inflation in 2022 and 2023 provides some room to keep the debt-to-GDP ratio in check (higher tax revenues offsetting higher borrowing costs and pension spending).”

GIADA GIANI, ECONOMIST, CITI

“A clear coalition victory increases the likelihood that the next government will last longer than recent ones. It also speeds up the appointment of the new government, probably before the end of October.”

“Meloni’s first key decision will be the appointment of the finance minister, with a pro-EU and fiscally cautious figure looking a likely fit for now. We don’t expect an immediate push for fiscal easing. major, but we see risks in the medium term that the political agenda of the right will come into conflict with the objectives of the EU.”

LORENZO CODOGNO, CHIEF ECONOMIST, LC-MA

“The role of Forza Italia can be crucial for the centre-right coalition and therefore provide a certain guarantee on international alliances and the position vis-à-vis Europe.

“The PD has weakened considerably, while the Five Star Movement has performed well in opinion polls. All in all, despite some minor but important changes, no major surprises. The first steps of the new coalition will be crucial to see if the reassuring signals are confirmed. Yet many questions remain unanswered”.

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Reports from the Italian office; Compiled by Agnieszka Flak; edited by Valentina Za

Our standards: The Thomson Reuters Trust Principles.

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