It has been a very long night for traders as the ebb and flow of the expected results in the Italian election causing large swings in currency and equity markets. Indeed while the centre left seems to be going to be able to form Government in the lower house the Senate is less clear with no majority but it is increasingly looking like the other side of politics, Silvio Berlusconi’s crew will have the upper hand.
This volatility in exit polls and the actual counting has been the primary driver of markets own volatility overnight with early reports that a clear victor would be found turned to ashes when it became clearer that the result would be less clear cut with the potential of a hung parliament of different stripes in the upper and lower houses as noted above.
The possibility of gridlock or paralysis is high and we will all be watching the ebb and flow of negotiations and announcement for the next few days.
Ans so traders would be licking their wounds this morning haven driven the Euro up to 1.3318 before driving it all the back to a low of 1.3126 with it sitting just up 11 points at 1.3137 as I write. The Euro has also plunged against the Yen with a ludicrous almost 400 point range with EURJPY making a high of 125.20 to a low of 120.99 and EURJPY sits this morning at 121.61 as we write. You can see the poor performance of the Euro in the table below. Even the pound out pointed it.
The Yen itself was much stronger reversing off a marginal new high at 94.76 on the back of the news about Kuroda and the Governorship of the BoJ which was seen as extremely yen negative given his dovishness in Asian and early European trade. USDJPY traded all the way down to 92.79 off 1.23% at present at 92.64. A break into and through the 92.30/91.90 zone is still required for us to call a conclusive top for this run but USD/JPY is getting closer. NOTE: as we were posting USD/JPY crashed and has now taken out the crucial 91.90 level – we would expect it to get chased back a little but for us the trend has now reversed and some shorts have been triggered – as dangerous as this feels.
The Aussie has also had a bit of a ride trading down to 1.0260 yesterday after the weaker than expected Chinese HSBC Manufacturing PMI which seemed to miss by a mile before a rally back to around 1.0315 before plunging again below 1.0270 where it sits this morning down 0.36%.
All these moves mean nothing if somehow something positive comes out about the Italian election or some sort of deal or compromise over the Governing of the nation emerges. But that is a little market Cygnet that we have no ability to guess at. indeed if the last 25 years have taught me anything it is that the idea of an expert in Italian politics is an oxymoron.
Perhaps, that is, except for Silvio Berlusconi himself so we hold some hope that at his advanced age he might be able to cobble something, some sort of compromise together for the greater good of Italy and as his legacy. Unknowable as this is however we have to focus on what is in front of us and the reality is that the Italian election when coming on top of the weaker GDP data over the past week, the rubbishy PMI’s and the downgrading of the economic outlook by the Euro Commission itself leaves no one in any doubt that Europe is still in a lot of strife.
In 2010, 2011 and 2012 it was a Euro sourced imbroglio that knocked markets mid-year and although this is a little early in the year could we be heading down the same path again in 2013? Time and the Italian electorate will tell.
Looking at stock markets it was volatile in European trade on the back of the Italian news but given what is occurring in US markets Europe may have a little selling to do if nothing positive comes out in the next 12 hours. At the close the FTSE was up 0.30%, the DAX up 1.45%, the CAC up 0.40% while Italian stocks were 0.73% higher. In Madrid stocks were up 0.81%.
In the US with an hour to go and so with 60 minutes of time with which to react to fresh news the Dow is down 0.48%, the Nasdaq is off 0.37% and the broader S&P 500 is down 0.63% to 1506. Looking at our charts it looks like the S&P is very close to confirming a top is in. A break of 1494/6 opens up a run toward 1453 as you can see below
On Commodity markets Gold’s rally continued with the yellow metal up 0.89% to $1589. Silver also was supported up 1.85% to $28.96 oz. Crude was largely unchanged at $93.15 bbl. Copper was up a little for a rise of 0.24% while the grains volatility continued with Soybeans down 0.75%, wheat off 1.78
Inflation expectations in New Zealand this morning, Governor King speaks in the UK tonight and in the US the Case Shiller house price index will be the key focus.
But let’s face it – nothing beside the Italian election and to a much lesser extent because of the Italian election the next BoJ Governor story.