The Italian referendum, which aims at making future governments more stable, morphed into a vote of confidence on Renzi..…
Jeanne Asseraf-Bitton – Global Head of Cross Asset Research
Markets and polls say “No” will prevail, but without triggering early elections.
Polls forecast a non-disruptive “No”, leading to a new government (led by Renzi or not). But with 25% undecided, all bets are still open
Italian and European markets are consistent with this outcome. They price a persisting risk premium in Italy and Europe, not a disruptive one.
Our views on the likely scenarios after the referendum:
“Yes” (45% probability) to boost Italian equities +10%, Italian banks +15%, European equities +5%, and to revert the Italian BTP vs. Bund 10Y spread to its recent 100 bps average.
“Soft No” with a new government (45% probability) to lead to a moderately higher risk premium in Italy and Europe. Italian equities to drop -5%, Italian banks -7%, European equities +5%, and Italian 10Y spread to rise to 200/250bps.
“Hard No” with early elections (10% probability) to translate into a much deeper tail risk, extending to Europe. We expect Italian equities to plunge -10%, Italian banks -15%, European equities -7%, and the Italian 10Y spread to reach 300ps, with the Bund yield weakened by safe haven flows.
We would refrain from positioning before the vote. Post-referendum, we would play contrarian because of the ECB.