Jonathan Marriott – Chief Investment Officer, LGT Vestra LLP
They say that phenomena tend to come in threes. One of the origins of this belief stems from an old superstition amongst soldiers (predating the Crimean War) that if three soldiers lit their cigarettes from the same match, the third and final soldier to light his cigarette would be killed. The logic behind it was that the first soldier’s strike of the match would alert the enemy of their whereabouts, in the time it takes for the second soldier to light his cigarette the sniper would have prepared his rifle and by the time the third soldier lights up, he would be shot.
With 2016 bringing Brexit and then Trump, there was a time when the superstitious amongst us speculated that a ‘no’ vote in the Italian Referendum would be the killer blow for markets. However, markets react most to the unexpected and as the referendum date drew closer, the general expectation was that it would be a ‘no’ outcome.
For once, the pollsters got it right and, with the European Central Bank saying it was prepared to support markets if there was disruption, we have seen little market moves this morning. The Euro dipped in Asian time but has recovered since. Sterling had been stronger ahead of the weekend on the possibility of a softer Brexit with the UK contributing to the EU to keep access to the single market. Equity markets are little changed with the FTSE MIB Italian Equity Index dipping initially but since stabilising, elsewhere in Europe equity markets are up this morning. European peripheral bond markets have fallen with Italian bond yields rising but this only reversed the move on Friday. Overall, there has been virtually no market impact. It would seem that we have dodged the bullet for now.
Looking forward, Italian Prime Minister, Renzi has announced his resignation and we will have to wait and see what kind of government can be put together. The troubled Italian bank Monte di Paschi di Siena was said to be looking to raise capital this week and attention will be on whether this deal can be completed. The European Central Bank meets this Thursday and we should expect an extension to their bond buying program. Recent talk of tapering now seems further away.
Many in Europe will be relieved to see the far right candidate fail in the rerun of the Austrian presidential election. However with French, Dutch and German elections next year political influences on markets are here to stay.