Italian markets were up big today after Italy managed to form a coalition government over the weekend.
The FTSE MIB 35 stock index closed up 2.2% while Italian 10-year government bond yields fell 14 basis points to 3.91%.
Over the weekend, centre-left politician Enrico Letta was sworn in as Prime Minister of Italy, with a member of Silvio Berlusconi’s centre-right party as deputy prime minister.
Italy has been without a proper government since the federal elections held at the end of February resulted in a hung parliament, so the news out over the weekend is welcome relief for Italian markets – especially stocks, which have been relative underperformers against other euro zone countries.
In a note to clients this morning, Société Générale economist Michala Marcussen writes:
Sunday saw Prime Minister Letta’s new grand-coalition government sworn in. Structural reform is a top priority combined with economic growth. Hope is that the electoral law that resulted in the stalemate at the last election can be reformed, but of equal importance is to address the structural deficiencies of the Italian economy.
The new government is characterised by several technocrat appointments with notably Mr. Saccomani from the Bank of Italy serving as Finance Minister. Given the electorate’s rejection of painful structural reform and the marked divides that still shape Italian politics, the fear is that the government will prove short-lived.
Regardless, financial markets like the news today.