If one looked at the EURUSD exchange rate or US equity futures one could be forgiven for thinking things did not go so well in Italy's election. The former is fading quite rapidly from its overnight exuberance and the latter is stable at pre-FOMC levels. However, a glance at the initial exuberant, nothing can stop us now, Italian (and Spanish) bond and stock markets and it appears the problems of the world have been solved. Spain's 10Y yield is back below 5%, Italian 10Y spreads have collapse 30bps to near multi-year lows, and Italy's equity market is up 3.5%. However, if you pause, take a breath, and look around, the liquidity is plain to see and the initial knee-jerk is beginning to retrace as investors realize that everything they knew was there before - is still there...
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Where Italy goes, Spain goes and vice versa and so European Sovereign spreads have snapped lower- but have now stabilized once again (with Spain 10Y at 5% and around 335bps spread and Italy 10Y around 4.2% and 260bps spread to Bunds) at the lows of the year...
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and even Italy's FTSEMIB is rolling over from its initial exuberant stop-run...
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Charts: Bloomberg