The Spanish stock market opened deep in the red on Wednesday morning, following a combative speech by Spain’s King Felipe VI. Investors would do well to take these market signals seriously.
It has now been a year since the UK electorate made, as a British fund manager put it recently, “a huge strategic error of the like the country hasn’t experienced in maybe a century” by voting for Brexit.
Stock markets have responded to the Italian No-vote in an even more muted way than to the UK’s vote Brexit and Donald Trump’s election. Are investors being complacent about the political and economic effects of a vote that was seen as vital for the future of the EU not so long ago, or has the referendum outcome in fact already been priced in?
European markets were largely unmoved on Monday morning despite the Italian electorate’s decision to reject Prime Minister Matteo Renzi’s call for constitutional reform.
Whereas equity markets have quickly shrugged off the result of the US presidential elections, peripheral bond spreads have widened since. Trump’s election seems to have reminded markets of the possible consequences of an Italian no-vote in next week’s referendum.
The Italian constitutional reform referendum this autumn will, or rather should, cause European investors to hold their breath more anxiously than they did on the morning of 24 June.