Europe: Guided by political uncertainty – Westpac

Tim Riddell, Research Analyst at Westpac, notes that markets are beginning to price in greater risks of perceived populism as the Italian referendum and Austrian presidential elections draw near.

Key Quotes

“Even though an Italian “No” vote may reflect the complexity of the constitutional reforms, it will put pressure on the EU. The rise in BTP spreads and Italy’s sovereign CDS also reflect concerns over the banking sector, which remains an issue for Portugal, Greece and Spain as well.”

“Despite the improvement in Eurozone survey data recently, the policy differential to US will remain. The ECB (8th December) is likely to maintain its highly accommodative stance in the absence of any other policy support.”

“Lower Swiss exports, restructuring of the insurance sector and yet another repeat of SNB’s support for NIRP will cap CHF. EUR/USD remains on track to test the lows of the past 18-months in the 1.0455- 1.0525 area.”