"Meanwhile In Europe…" – The Big Day Arrives
By Tyler Durden
Less than a month after the “shocking” election of Donald Trump as US president, the world prepares for another day of political shockwaves, this time out of Europe, when on Sunday all eyes will be on Italy and, to a slightly lesser extent, Austria.
Or, as Bank of America puts it “Meanwhile in Europe…”
As we have previewed on various occasions (most recently in Friday’s extensive “Everything You Need To Know About The Italian Referendum & Should Be Afraid To Ask“), in a few short hours, Italy will vote on a constitutional reform referendum. While we urge readers to skim the in depth “walk thru“, here is a simplified version of what happens after the likely “No” vote tomorrow.
The main concern in the markets – which has manifested itself in both the European currency, its vol structure, as well as Italian bond yields – is that a strong “No” vote will cause Prime Minister Renzi to resign, leading to political instability in Italy. Furthermore, a “No” vote is expected to kill a long-running attempt to rescue Italy’s third largest and oldest bank, Monte dei Paschi, which has been desperate for a private sector bailout ever since it failed this summer’s ECB stress test to avoid broader banking sector contagion; a failure of Monte Paschi will likely spark a fresh eurozone banking crisis, and prompt the ECB to get involved again (as it warned it would do), in a redux of what happened after the Brexit vote.
Also on Sunday, there is also a presidential election in Austria. A victory by the right-wing candidate, Norbert Hofer, would raise concerns about EU fragmentation because his party has advocated a referendum on EU membership. His victory would also raise concerns about a similar outcome in the French elections in May, and many other upcoming European elections as shown in the calendar at the bottom of this page:
However, while the Austrian vote will again be down to the wire – and since this time there won’t be any Brussels-endorsed “widespread voting fraud“, Norbert Hofer is assured to win – the key event will be the Italian vote. Here is what to expect in terms of timing:
- Provisional turnout results from 7pm GMT (2pm ET)
- Exit polls then expected around 10pm GMT on Sunday night (5pm ET)
- First projections by Italian pollsters based on counted votes at around 10.45pm GMT (5:45pm ET)
- Final result will come in around 2am on Monday (9:00pm ET)
In the highly improbably event the “Yes” vote wins, Deutsche Bank analysts write that a rebound in the Italian equity market should be largely restricted to financial stocks. Although the FTSE MIB is trading at a 15% discount relative to its 10-year average vs. Europe, valuations look substantially less attractive once banks are excluded from the index. The relative P/E of the FTSE MIB ex banks is trading in line with its long-term average vs. Europe ex banks. Several Italian sectors are even trading at a premium vs. their …read more
Source: "Meanwhile In Europe…" – The Big Day Arrives
