Markets Brace For Volatility As Italy Votes “No” On Constitutional Reform

The global financial markets were on high alert Monday after Italian Prime Minister Matteo Renzi conceded defeat in the December 4 referendum. Analysts note his defeat likely paves the way for the populist Five Star Movement to sweep to power.

Renzi staked his political career on a “Yes” outcome in the referendum he proposed, which would have reformed the constitution by reducing the powers of the Senate. Renzi, who made his name as an anti-establishment candidate, has formally resigned from office.

“The experience of my government ends here,” Renzi said in a news conference, adding that the outcome of the plebiscite “extraordinary clear.”

“I have lost and I say it out loud,” he said.[1]

Exit polls showed more than 59% of voters said “No” to the constitutional reforms, compared to around 40.4% who voted in favour of them. According to the country’s Interior Ministry, around 70% of eligible voters participated in the plebiscite.

Public opinion polls in the weeks leading up to the referendum painted a grim picture for the embattled prime minister, who was increasingly viewed in a negative light by Italians frustrated by dismal growth and high unemployment.[2] Therefore, the referendum was also seen as a vote of confidence in the now former leader.

The global financial markets are bracing for possible turmoil in the aftermath of the vote. The euro immediately plunged to 20-month lows against the US dollar, with the EUR/USD exchange rate falling toward 1.0500.

Asian stocks were down across the board, with mainland China’s Shanghai Shenzhen down nearly 2% in the early afternoon.

However, analysts noted that the market’s response was muted in comparison to other major events earlier this year, as investors had already priced in a Renzi defeat.[3]

“Risk sentiment has taken a hit from rejection of the Italian referendum,” Citigroup analysts said in a report following the referendum, adding that the margin of rejection is “surprising.”