To summarize, this is what has happened so yet another major blow to the European political status quo:
- Italy PM Renzi lost by a huge margin, with the latest estimate somewhere around 59% voting “No” to Renzi’s proposed constitutional referendum.
- In a speech moments after the results were announced, Renzi confirmed he would hand in his resignation tomorrow, adding he isn’t available to lead a caretaker government in a blow to many sellside forecasters he would do just that
- As Bloomberg notes, the scale of the loss and how quickly it happened cast a huge shadow on the fate of the continent headed into 2017.
- Italy’s opposition parties, from Grillo’s Five Star Movement to Calvini’s “Northern League” to Berlusconi’s Forza Italia, seem to be aiming for early elections as soon as possible, “after making a few tweaks to the current electoral law.” Grillo said this can be done in “one week.”
- The blow out result of the referendum is a confirmation that anti-euro populists are ascendent in Europe. Expect more long nights in the months to come, especially in France and the Netherlands which are the two next big potential dominoes to fall.
- What’s next? According to Bloomberg, “Italy is in for a period of high instability. The prospect of a prolonged, bitter electoral campaign won’t do any good to the country’s already anemic recovery. Not to mention its battered banks who may have to ask for public aid.”
- The EURUSD dropped to the lowest level since March 2015, sliding uner 1.05 briefly, but has since recovered some of its initial losses:
“The experience of my government ends here,” Renzi said in a televised address to the nation after early voting results suggested his ‘Yes’ camp may have lost the referendum by as much as 20 points.
Renzexit first, Quitaly next?
Renzi said he took full responsibility for the “extraordinarily clear” defeat and that on Monday afternoon he would convene his cabinet and then hand in his resignation to President Sergio Mattarella.
Meanwhile, not wasting any time, the man who would likely win an election if one were held today, Five Star founder Beppe Grillo, said in a blog post that Italians need elections as soon as possible, adding that the election law for the lower house can be the current one, even though the movement has “always criticized it” and says a new election law for the Senate, with tweaks to make it more governable, can be done in one week.
At the same time, Italy’s Salvini, leader of the “Northern League”, smelling blood and an opportunity to pounce, said he is ready for elections with any Law, according to ANSA.
The result of today’s events has hit the EURUSD first and foremost:
“Expect volatility premiums to rise and the euro to trade below $1.05 against the dollar, potentially testing last year’s low of $1.0460 in a ‘no’ vote scenario,” Petr Krpata of ING Groep said before the referendum. “While the market is positioning for the risk of ‘no’ vote outcome, a knee-jerk reaction is still likely to be a lower euro” as it would “underline the upcoming risk” of other elections in Europe.
After the referendum, Daisuke Karakama, chief market economist for Mizuho said the EURUSD may fall to 1.02 in January-March period as European elections make investors wary. First reaction to Renzi resigning is EUR selling, JPY buying, but more important event is parliament dissolution and general election in Italy which may not occur until 2017. Daisuke says elections in Netherlands, France, Germany and Italy next year keep euro pressured. He also notes that Italy isn’t a factor-snapping trend of Trump rally and won’t be trigger for all-out JPY buying as market sentiment is somewhere between risk-on and risk-off.
As Bloomberg’s Flavie Krause-Jackson put it, “tonight’s stunning defeat of Renzi by a much larger margin that expected throws into sharp relief the challenges that lie ahead for European centrist leaders. At this point it’s almost impossible to discount even more shocks. We expected a close race, what we got was a very clear message that people will not tolerate the status quo and are willing to burn the house down regardless of their interests. And to be clear, the political instability that will follow will benefit very few.”
And sure enough, as noted above, Italy’s opposition parties quickly called for early elections moments after Renzi said he was resigning: “Sovereignty is with the people, from now on we will start applying our Constitution. Let’s go immediately to the polls!” the founder of Italy’s anti-establishment 5-Star Movement, comedian-turned-politician Beppe Grillo, wrote in a tweet as official results started coming in.
The leader of Italy’s anti-euro Northern League, Matteo Salvini, also called for immediate elections. “We need to vote as soon as possible,” Mr. Salvini said in a press conference, asking to bring forward the next general elections, which would be slated for the spring of 2018. Both the 5-Star and the Northern League will try to capitalize on Mr. Renzi’s sound defeat in the referendum, which saw the “No” prevailing with almost 60% of votes, according to partial data.
According to the latest opinion polls, the 5-Star Movement is neck-and-neck with Mr. Renzi’s center-left Democratic Party at around 30% and could aim at heading the next government, if Italian president Sergio Mattarella decides to accept Mr. Renzi’s resignation.
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The rejection of Renzi’s reform means Italy’s government bonds, which have been the euro zone’s worst performers in the past six months, may drop Monday. The bond market opens at 8 a.m. Rome time (2am ET). The yield premium demanded by investors for owning the nation’s 10-year bonds instead of benchmark German bunds surged on Nov. 28 to the most since June 2015, before rebounding last week as Italian stocks also gained.
The nation’s benchmark FTSE MIB Index of shares, which start trading at 9 a.m. in Rome (3amET), has dropped about 20% this year, and may extend its decline on Monday.
So what happens next? We leave it to Doug Casey to sum it all up succinctly:
December 4 referendum fails >> M5S comes to power >> Italians vote to leave the euro currency >> European Union collapses
Here is The Wall Street Journal to explain in more detail what happens next…
New Renzi Government:
Italian President Sergio Mattarella could ask Mr. Renzi to reshuffle his cabinet and form a new government. However, Mr. Renzi has said in recent days that he is unlikely to accept such an option, given that he would be in a much-weakened position following the vote.
A Caretaker Administration:
Mr. Mattarella could ask someone else to lead a new government with a limited mandate to oversee the drafting of a new electoral law and pass the 2017 budget. One candidate is Economy Minister Pier Carlo Padoan, who could help soothe markets that have been nervous about political instability following a no vote. Others include Pietro Grasso, speaker of Italy’s Senate, and Dario Franceschini, the current culture minister.
Major political parties are pushing to change an electoral law passed last year that would give extra seats in Parliament to any party winning 40% or more of the vote. That measure was intended to make for more stable governments. Establishment politicians now worry that it could help the populist 5 Star Movement gain power and want to rewrite the rules before any new national election.
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Update #6: Renzi’s Speech:
- RENZI CONCEDES REFERENDUM DEFEAT, SAYING PEOPLE HAVE SPOKEN
- ITALY PM RENZI SAYS I TAKE FULL RESPONSIBILITY FOR DEFEAT
- RENZI: “NO” LEADERS NOW HAVE GREAT RESPONSIBILITIES
- RENZI: WE HAVE FAILED IN CONVINCING CITIZENS, WE WANTED TO WIN
- RENZI SAYS HE WILL OFFER HIS RESIGNATION TO PRESIDENT
- RENZI: MY GOVERNMENT ENDS HERE
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Update #5: Renzi just tweeted to his 2.77 million followers: “Thanks to all of you anyway. In a few minutes I will be speaking to you directly from Palazzo Chigi. Long live Italy! PS Am coming, am coming….”
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Update #4: Italian Prime Minister Matteo Renzi is likely to meet President Sergio Mattarella early Monday, as exit polls show he’s suffered a heavy defeat in a referendum on constitutional reform, according to a government official who asked not to be named. Renzi has pledged to resign if his plans to overhaul the constitution are rejected by voters.
Seems pretty clear…
EURUSD keeps sliding…getting close to some very srious support levels:
- 1.0524 is Dec 2015 lows
- 1.0518 is 11/24 lows
- 1.0458 is Mar 2015 lows
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Update #3: First Projections confirm exit polls – wide margin of victory for “no” defeat for Renzi…
* * *Update #2: Following the exit polls and the market’s response, “Northern League” leader Salvini has called for early elections:
- SALVINI: NO VICTORY WOULD MEAN PEOPLE DEFEATING ESTABLISHMENT
- ITALY NORTHERN LEAGUE LEADER CALLS FOR EARLY ELECTIONS: MNI
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Update #1: The Exit polls have begun:
- *ITALY REFERENDUM: ‘NO’ AT 55%-59% IN EMG EXIT POLL
- *ITALY REFERENDUM: ‘NO’ AT 55%-59% IN TECNE EXIT POLL
- *ITALY REFERENDUM: ‘NO’ AT 54%-58% IN RAI EXIT POLL
Exit polls have at times proved unreliable in Italy, underestimating Renzi’s 2014 victory in European elections by 10 percentage points, but for now, the market seems convinced…
EURUSD is tumbling…
Some comments from anti-establishmentarians have begin:
- LE PEN AIDE ON ITALIAN REFERENDUM RESULT TWEETS ‘IT’S A GREAT VICTORY FOR THE PEOPLE…IT’S FOR OTHER NATIONS TO BE SET FREE’
- *ITALY REFERENDUM: ITALIANS ABROAD TURNOUT 30.9%:FOREIGN OFFICE
How did we get here? Here’s a quick timeline from Bloomberg’s Marco Bertacche
- April 15, 2014: The Senate approves first version of reform, backed by Renzi allies and Berlusconi’s party
- Jan. 31, 2015: Renzi’s candidate is elected president of the republic, prompting Berlusconi to withdraw support for reforms
- April 12, 2016: Lower house completes approval, lacking two-thirds majority needed to avoid referendum
- Aug. 4, 2016: Highest court accepts referendum request with more than 500,000 signatures from Yes campaign
- Sept. 26, 2016: Renzi’s cabinet calls for Dec. 4 referendum. Decision is binding
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As we detailed earlier, Italians voted Sunday in a referendum on constitutional reforms that Premier Matteo Renzi has staked his political future on, hoping to survive the rising populist forces that have gained traction across Europe.
Renzi has said he will resign if the reforms, which he contends will modernize Italy and reduce its legendary bureaucracy, are rejected. Opposition politicians, ranging from the far-right to the far-left have vowed to press for a new government if voters reject Parliamentary legislation overhauling much of the post-war Constitution.
Even some figures in Renzi’s Democratic Party, including ex-Communists, said they’d vote against the reforms.
Polling stations are open from 7 a.m. to 11 p.m. local time (5pmET).
Bloomberg lays out what to expect, and when…
Provisional turnout results for the vote as of 7 p.m. CET could indicate whether turnout is high in the South and Sicily, where anti-establishment parties are strong, which would signal bad news for Renzi. A high turnout in the Center and Northwest, his strongholds, may not be enough for him but could narrow the final margin. Renzi has indicated he’s aiming for a 60 percent turnout.
Overall turnout was around the 60% Renzi had expected, with a higher turnout in the North (more pro-Renzi) and lower turnout in the South (more anti-establishment)…
Exit polls are published by at least three TV networks (RAI, LA7, Mediaset). Exit polls have often gotten it wrong in Italy. In the 2013 and 2006 general elections they overestimated the center-left’s lead by more than 5 points, and in 2008 they underestimated Silvio Berlusconi’s lead by 7 points. In the 2014 European elections, Renzi’s Democratic Party got almost 10 points more than exit polls predicted.
Italian Prime Minister Matteo Renzi to speak at about midnight local time (6pmET) at his Rome residence, newswire Ansa citing his office.
First projections on counted votes may be published on TV stations. Votes will be counted continuously and updated on the Interior Ministry’s website throughout the night. A national total as well as regional and city breakdowns will be available.
First provisional results from cities usually faster at counting votes should start coming in. Before a two-week poll blackout period, the “Yes” and “No” camps polled virtually even in the Northwest (Milan, Turin) and in the Center (Bologna), with the “No” side clearly ahead in the South (Naples) and in Sicily (Palermo). Milan could give the earliest real indication of where things are going. Traditionally a Berlusconi stronghold, it swung to center-left administrations in past years and elected a center-left mayor backing Renzi’s reforms in June. A wide lead for “No” in Milan could mean Renzi loses nationally.
New projections could indicate a winner before real vote counting is complete.
There may be a final result of counted votes nationally, but results from 4 million Italians abroad, who were eligible to vote until Dec. 1, could come later. While their turnout is typically lower than the national average, they have trended toward center-left candidates in recent elections and are usually pro-government. These voters weren’t included in pre-blackout polls. Their votes could come into play if the referendum margin is very close. Reports indicate that turnout for Italians abroad was higher than expected.
Matteo Renzi is known to be tweeting extensively and could announce his decision on whether to offer his resignation, based on the referendum results, through social media.
So what happens next? We leave it to Doug Casey to sum it all up succinctly: