Vote Of No Confidence

Investors ditch Italy

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What's going on?

Investors voted down Italian stocks and government bonds on Tuesday, likely selling them in anticipation of tougher economic times ahead.

What does this mean?

A strong showing from Italy’s governing political party in last week’s European elections has spooked some investors. After months of battling with the European Union (EU) over its rather altissimo spending plans, some worry that Italy’s leaders might take their electoral gains as a cue to spend more than agreed – thereby making repayment of the country’s bonds less likely. Italy had already drawn the EU’s ire: without a trace of irony, it’s planning to fine the pasta purveyors $4.5 billion for taking on too much debt.

In Greece, meanwhile, a decidedly disastrous European showing for the party in charge means a national election is now imminent. That boosted investors’ appetite for Greek stocks and bonds, likely because the favorite to win is seen as being business-friendly.

Why should I care?

For markets: Sometimes investors get ahead of themselves.

Investors elsewhere in Europe may have been buying up stocks on Tuesday thanks to new data that showed consumers’ moods improving for the first time in almost a year in May. Stock markets around the world rose after the last US presidential election: investors correctly predicted lower taxes and less regulation would boost company profits. Those buying Greek stocks may expect a similar outcome. But broader European investors would do well to remember November’s US midterm elections. When decision-makers disagree, market-moving changes are less likely…

The bigger picture: Meet the new India, same as the old India.

Last week’s Indian elections led to the country’s incumbent prime minister securing a second term in office. While India has a number of social issues to overcome, its economy is currently the seventh largest in the world – and with 7% annual growth (compared to 2% in the US this year), India is expected to overtake France and the UK to sit in fifth by the end of 2019.

Originally posted as part of the Finimize daily email.

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