Sleepless nights have become common for foreign exchange, bond and share dealers over the past six months, due to UK’s unexpected decision to leave the EU in June and Donald Trump’s election last month, which caught markets by surprise.
Currently, Italy is under the spotlight heading into the Sunday 4th constitutional referendum. The goal of the proposals is to ensure that future Italian governments are made more stable by reducing the powers and size of the Senate. Italian Prime Minister Matteo Renzi is currently leading the “yes” vote and has promised to resign if a “no” vote prevails.
Fate of the euro
The euro is about to face a big test this week due to the constitutional referendum which threatens to shake the entire Eurozone and place significant pressure on the European currency.
“We think the EU will break and that Italy will leave the euro. Until a while ago this was just unthinkable, implausible, but we’re starting to see the wheels in motion, at the very least,” said Jim Smigiel, a U.S.-based money manager at SEI Investments Co.
According to the latest opinion polls, a majority of European citizens still believe in the single currency. Nonetheless, the most recent history has shown that things can change fast.
European stocks trade at 3-week low
During European morning trade, the pan-European Stoxx 600 index was down 1.2 percent, the lowest in more than three weeks.
France’s CAC 40 declined 1.3 percent, while Germany’s DAX was down 1.2 percent.
“We’re back to the old problem with European politics weighing on markets. The Italian referendum, whichever way it goes, leaves us either no better off than before or no better off and without a leader,” said Ben Kumar, London-based investment manager at Seven Investment Management.
Adding to political uncertainty in Europe, French President Francois Hollande announced on Thursday that he will not be seeking a second term in the country’s upcoming presidential election. In addition, Austria may elect a new right-wing president also on Sunday.