Markets have turned red on news that Silvio Berlusconi is doing much better than expected in the Italian election, at least based on Senate polls.Analyst Dave Lutz of Stifel, Nicolaus just IMd a very simple explanation of what’s going on and why it matters.
Berlusconi getting traction puts some of Monti’s austerity measures and moves at risk. This reverses the confidence the Cap Markets have in Italy Debt. They sell Italy Debt – 2 things happen: Flight into US Treasuries (Natural Rotation) and EU Financials hit (Loaded up w/ PIIGS debt). Dollar jumps as EUR gets hit, causing Natural Headwind for Commodities. Ultimately the “Risk Off” environment storm weighs on the SPX
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