Update: Maybe not so fast with the 'everything came out just as expected' conclusions.
According to the first official results, just like in Germany and Austria, there has been a surge in non-mainstream parties, with 5-Star potentially getting as much as 33% of the vote, and strong enough - at least on paper - to for a coalition government with the Northern League's 17.3% from the early count, creating the so-called "Euroskeptic coalition ", even as the establishment PD tumbles.
In other words, while the final outcome may still be a hung parliament, the results show a far more stark redistribution of forces, with a potential game changer in the offing as suddenly Five-Star and the Northern League could form a majority...
Italy: Eurosceptic majority confirmed: 5 Star Movement (EFDD) and Lega (ENF) together reach about 49% of vote share. Plus the right-wing FdI (*) they reach well over 50%. #Elezioni4Marzo2018 #elezioni2018— Europe Elects (@EuropeElects) March 4, 2018
... with the following political outcome:
- M5S explodes
- Northern League overcomes Forza Italia
- PD implodes
- M5S + Northern Ligue could have a majority
If that is indeed the case as the night rolls on, watch as the Euro tumbles as visions of Italeave come flooding back.
It can not be underscored how ugly the current outcome would be for Europe's establishment, if the current results persist throughout the night. They would, in fact, represent The Ugly (II) outcome from the following matrix by Teneo Intelligence.
And even if the final outcome is not that stark, it appears that after similar outcomes in Germany and Austria, Italy has just confirmed that not only is Europe's anti-establishment/populist wave back front and center, it never went away, or as one commentator put it, "no good outcome in Italy", where there is:
- No clear majority.
- Lega could be stronger than FI in conservative bloc.
- Theoretical absolute maj for M5S and Lega (highly unlikely but highly disturbing scenario)
- PD ok-ish, but not more
"So, if confirmed: hung parliament. Difficult."
Yes, an unstable/Eurosceptic Italy could put the breaks on Franco-German plans for Eurozone reform. And if Italy moves v budget discipline @ & structural reform, GER will be less willing to sign up to elements of a transfer union @CER_EU https://t.co/85wq0A00pO— Charles Grant (@CER_Grant) March 4, 2018
And yes, the EUR has started to notice, as have S&P futures, which briefly fell as much as 0.6%, before paring loss to 0.4% in early Monday morning trading in Asia.
* * *
In our preview of the Italian elections on Friday we said that, barring some unexpected shock, the most likely outcome is a hung parliament, where no one party or coalition has a majority to form a government. If this happens, Italian President Sergio Mattarella, will call on parties to form a broader coalition of pre-election adversaries. This could include the ruling centre-left Democratic Party and Silvio Berlusconi's Forza Italia.
Moments ago an exit poll by Italy's RAI showed that as expected, the populist 5-Star Movement leading the Italian election but not with a strong enough lead to govern alone. Meanwhile, the exit poll by the Piepoli polling agency had the 5-Star Movement with between 29.5 percent and 32.5 percent of Sunday's vote. The Democratic Party was the next largest party, with between 20 percent and 23 percent of the vote, according to the poll. Former Premier Silvio Berlusconi's Forza Italia and the anti-immigrant League each were polling at between 12.5 percent and 15.5 percent. They were running as part of a three party center-right coalition, which is likely set to come in first place.
In other words, as expected, it does appear that a hung parliament is the most likely outcome, with the Berlusconi Coalition of Forza Italia, the Northern League, BI and other smaller parties in the lead with roughly 35% of the vote.
- Berlusconi Bloc gets 33.0-36.0% in Italy Lower House and 33.5%-36.50% in the Senate
- Five Star gets 29.5-32.5% in Italy Lower House and 29.0%-32.0% in the Senate
- Center-Left gets 25-28% in the Senate
A separate exit poll by Mediaset gives a similar breakdown, with 5-Star in the Lead, the Center-Right "Berlusconi" Block in the mid-30s, and the Center-Left in the mid/upper 20s.
Italy, Mediaset exit poll:— Europe Elects (@EuropeElects) March 4, 2018
CP-*: 0.8% pic.twitter.com/TA6dsHzjDx
As a reminder, a hung parliament would bringing with it weeks if not months of political negotiations and more of the same.
And so, with the election outcome as most had expected, the kneejerk move in the EURUSD has been predictably muted.
Still, as Bloomberg and Pantheon economics warn, investors should remain cautious at least until the final Italian results are confirmed, and quite probably for after as well, as exit polls have proved to be very unreliable in the country’s previous elections and a tight verdict may leave several different outcomes possible. Here is Pantheon on the "sensitive topic" of polling error in Italy:
There are exit polls, and then there are Italian exit polls. We advise everyone to take these initial results with a big heap of salt. These polls have tended to be unreliable in the past.
Oh well, if the outcome is the opposite of what everyone had predicted, they can just blame Russian trolls for meddling in the election (if not affecting the final outcome).