Conclusion
We are in final leg of US Dollar strength – the 5th wave – target 106/107 or the big level 120? (Vs 101.00 now)…..I believe in 105/107 top…
Trade:
Long US Bonds – from here – 2.5 Std. dev. oversold – and with tail-risk increasing post Thanks Giving - I take one unit long of TLT ETF today…with stop below 118 on close…. (Spot 121.15 on close yday)
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Zerohedge did interesting chart - 2 weeks vs. 1 weeks volatility EURUSD…..
I still think the PEAK of the US dollar cycle will coincide with President elect Trump being sworn in – DON'T forget world can't operate with a stronger US Dollar, just look at EMG since Trump and inflation came back as headlines!
Volatility for POST Italian election spiking…(more risk!)
And Italy vs. Germany 10 Y bond..
US Dollar INDEX and EEM ETF (Inverted) ((( Strong US Dollar "kills" )))
TLT chart – buying one unit…
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(BI) ITALY INSIGHT: No Euro Exit, Even If Renzi Loses Referendum
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ITALY INSIGHT: No Euro Exit, Even If Renzi Loses Referendum
2016-11-21 08:27:06.925 GMT
By Maxime Sbaihi
(Bloomberg Intelligence) -- After Donald Trump's victory in the U.S., a referendum on proposed reforms to Italy's constitution will bring political risk back across the Atlantic.
A victory for the 'No' camp would force Prime Minister Matteo Renzi to resign, possibly throwing the euro area's third-largest economy -- plagued by sluggish growth and a banking crisis -- into political turmoil. Polls, for what they are worth, suggest this is the most likely scenario. Financial markets are already showing signs of nerves, but whatever the outcome, Italy is unlikely to leave the euro area anytime soon -- let alone the European Union.
Constitutional Reform
Italian citizens will head to the polls on Dec. 4 to vote on a referendum called by Renzi who is trying to push through significant changes to the country's constitution. These proposals foresee an end to the so-called perfect bicameralism, which puts the Chamber of Deputies and the Senate on equal footing in terms of passing laws and confidence votes in the government.
Renzi wants to have fewer senators, no longer directly elected by the people and with less power. He also wants to suppress the provinces and remove some policy overlap between central government and the regions. The aim is to speed up the legislative process and improve political stability in a country which has had more than 60 different governments since World War II. As Renzi himself put it, "a cat on the motorway between Florence and the sea lasts longer than a government."
Voting Intentions
The referendum stakes are especially high given that Renzi has gambled his political future on the outcome. He has pledged to quit if he loses the vote, running the risk of turning the referendum into a vote of confidence on his premiership. As the chart shows, national polls suggest he will lose. The 'No' camp has been ahead in the polls for several weeks, though the exceptionally high number of undecided voters, around 30%, could still tip the balance in his favor. By law, no more referendum polls will be published until the vote.
Polls Show Renzi Set to Lose Referendum
It's worth noting that all 20 regions are now leaning toward voting 'No' and many by a wide margin. Some voters may be taking the opportunity to protest against Renzi and his policies, the establishment or Europe. Joblessness, for example, could also be influencing voting intentions, though the relationship between regional unemployment and poll results is not particularly strong -- as illustrated below. That's somewhat unexpected given that Italy resembles the euro area, divided between a rich and industrial north and a poorer south plagued by high unemployment.
No Relation Between Unemployment and Polls
Other factors probably matter too, such as income differentials, but it's possible that the reason the government is failing to raise support for its proposals is the reforms themselves. They will deliver more power to future governments, and maybe too much. Many within Renzi's own ranks have expressed concern about this potential concentration of power.
The Political Consequences
If Renzi wins he will probably stay in post until the next election in 2018. But it gets much more complicated in the event of a 'No' victory. Renzi's resignation would force the Italian president to find a new Prime Minister with enough support in parliament. That's not an easy task. A centrist figure could emerge -- similar to Mario Monti in 2011 or Enrico Letta in 2013
-- to head a grand coalition. Renzi may also be called back to form a caretaker government until new elections are called.
The outcome of any snap election would first depend on the fate of the new electoral law -- less proportionate than the previous one -- which still needs to be approved by the Constitutional Court. In any case, polls show Renzi's Democratic Party running neck-and-neck with the euroskeptic Five Star Movement. The latter wants to stay in the EU but advocates a referendum on Italy's euro membership. Only an electoral victory, a stable parliamentary majority and, last but not least, a change in the constitution would allow them to hold a referendum on international treaties. Don't expect an exit to happen anytime soon.
Five Star Movement Snaps at Heels of Democratic Party
The Economic Consequences
If Renzi loses, continued political uncertainty could damage the weak growth momentum in the euro area's third-largest economy. Italy really doesn't need this right now. Despite significant reforms, the unemployment rate remains above 11%.
The European Commission is already insisting on further fiscal measures in the 2017 budget, which need to be finalized by the year end. Italian banks are struggling to cope with the weight of bad loans. Without fresh capital, they may be forced into bail-ins, with losses for retail bond holders and a potential credit crunch.
Italian Economy Struggles to Recoup Crisis Losses
The political risk is already being reflected in government bond markets. The spread on the 10-year yield has not only widened against Germany, but also against Spain. High borrowing costs are another problem Italy could do without. Next year alone, some 311 billion euros of Italian government bonds are maturing. Another Italian, European Central Bank President Mario Draghi, will be watching closely from Frankfurt.
Nerves Showing in Italian Government Bonds
To contact the reporter on this story:
Maxime Sbaihi in London at msbaihi1@bloomberg.net To contact the editors responsible for this story:
Tim Farrand at tfarrand@bloomberg.net
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