Italian Prime Minister Renzi to resign after referendum defeat; market fallout limited:

  • Italian Prime Minister Renzi announced he will tender his resignation later today after experiencing a heavy defeat in Sunday’s referendum. With most ballots counted, ~60% of Italians rejected Renzi’s electoral reform proposals, with a large turnout of 70%. Reform measure was intended to strip Senate of its powers and streamline the way parliament passes bills. Big concern now is that another bout of political uncertainty could stall reforms needed to boost sluggish growth and jeopardize bank recapitalization plans. Italian President Matterella expected to opt for a caretaker government to ensure some stability, though populist Five Star Movement (M5S) called for an immediate election and said it is ready to form a new government. Market fallout limited as a “No” vote had been widely expected and already reflected in underperformance of Italian assets (Brexit and Trump resilience likely also in market mindset). In addition, despite momentum behind populist movement, majority of Italians favor remaining in the euro.