It’s Italy’s Turn to Keep Traders Awake After Brexit and Trump

As trading desks await the outcome of a ballot that again has the potential to disturb the political order, they are readying for another sleepless night on Dec. 4 after the shock of Britain’s Brexit referendum and Donald Trump’s U.S. presidential election victory.

In what is the latest potential banana skin for investors, a judgment on Prime Minister Matteo Renzi’s leadership has been sounded this time in Italy where a vote on curtailing the power of the Senate is scheduled.

Neil Staines, head of trading at money manager ECU Group Plc in London has been taught what to watch by previous nights in the office, reports Bloomberg.  “It’s less about reading the polls and more about reading the markets, liquidity and pain thresholds in particular,” he said.

It will be more about impact than shock this time.

The question would be what happens next as all major polls before a two-week blackout showed Renzi losing by a narrow margin.

As markets adjusted to the possibility that a defeat for Renzi might trigger early elections and gains for Five Star Movement, volatility in the euro against the dollar approached levels seen just after Trump’s win. The Five Star Movement is a populist group that wants a referendum on Italy’s membership of the euro.

By suggesting he would resign if he were to lose, Renzi, 41, has staked his political future on the vote.

“You have to ask how much the market will react to something they are expecting. The difference this time is that it might be less about the result and more about how the vote is won or lost. There are a lot of unknowns,” said Andy Soper, head of Group of 10 foreign-exchange options at Nomura in London.

While Italian government bonds lost 2.5 percent, the euro, which will trade throughout the night, dropped 3 percent against the dollar this month. That market and the stock exchange will open the next morning. Whether enough banks are buying and selling as currency markets open in Asia after the weekend break is a key concern for traders.

Adding an extra buffer against potential gaps in the market, v would be asked for by brokers includingBottom of Form

London Capital Group and Saxo Bank’s equities department. There will also be more staff. Zoeb Sachee, head of European government bond trading at the bank said that Citigroup Inc.’s bond trading desk is planning an early shift while London Capital will deploy extra people on the night.

“We are planning for the worst,” said Laurence Crosby, head of trading at London Capital Group. He said that having extra people awake and at their desks will make trading conditions “better than a normal day,” and liquidity has the potential to be “particularly bad” when the first projections are published.

Richard Benson, managing director and co-head of portfolio investment at Millennium Global Investments in London however said that the consequences of the Italian referendum won’t be as widespread as Trump’s win or the U.K.’s decision to leave the European Union.

“It’s front and center in people’s minds,” he said. “But if you think about Brexit and the U.S. election being Premier League, this is Division Four stuff.”

(Adapted from Bloomberg.com)

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