Europe: Q1 2018 could see some renewed uncertainty in the periphery - TDS

Analysts at TDS suggest that the key risks for peripherals in 2018 will be the Italian elections by May 2018 as polls continue to see the Eurosceptic (M5S party) in the lead but also suggest that no single party could win a majority at this stage.

Key Quotes

“This would indeed suggest that Q1 2018 could see some renewed uncertainty in the periphery, widening credit spreads. However, we note that election risks in Italy are not binary as in the case of the French election. The newly-approved electoral law has made the risk of the Eurosceptic party forming a government less likely. However, a prolonged period of uncertainty could keep peripheral spreads on edge.”

“In addition, there are some questions on how Mifid II (which is implemented on January 3, 2018) might affect liquidity in the market. Mifid II is aimed at moving OTC trading onto regulated trading venues. There will also be stricter rules around reporting details of trades to regulators. With capital markets as global as they are, there may be some unintended  consequences of these European-specific regulations.”