- The Italian parliament has re-elected Giorgio Napolitano as Italian President.
- Italian Democratic Party leader Per Luigi Bersani resigned afterwards.
- Fitch has stripped the United Kingdom of its AAA rating.
- Eurogroup president Dijsselbloem has said that pace of deficit reduction will slow.
The Italian parliament on Saturday re-elected 87-year old Giorgio Napolitano as president after the first five rounds of voting had failed to result in a winner. This is the first time ever that an Italian president is re-elected. He will address both houses today. He has already called for the political parties to work together and is expected to push for a broad coalition government. We doubt that he will succeed and believe that he may soon call for new general elections instead. He now has the power to do that. The Constitution requires a minimum of 60 days from the dissolution of the Parliament to the election. If elections are called before the end of the month, they could then take place in late June. In Italy elections never take place in July or August (when Italy is on summer vacation), thus the president should call for new elections soon -- otherwise new elections are unlikely to take place until September.
Importantly, Democratic Party leader Pier Luigi Bersani and his team have resigned. This may pave the way for (38-year old) Matteo Renzi, who lost to Bersani in the run for party leader last year but is much more likely to get enough votes to secure a majority in both houses.
Late Friday Fitch downgraded the long-term foreign and local currency Issuer Default Ratings of the United Kingdom by one notch from AAA (negative outlook) to AA+ (stable outlook). The downgrade primarily reflects a weaker economic and fiscal outlook due to the upward revision to Fitch’s medium-term projections for the UK budget deficit and government debt (debt/GDP ratio is projected to peak in 2015-15 at 101%). Fitch is the second major rating agency to downgrade the UK (after Moody’s on 22 February 2013). See press release.
Eurogroup president Dijsselbloem said Saturday that the EU ‘can and will adjust speed of deficit reduction’, so that debt-cutting will proceed at a lower speed because of economic weakness. He also said that Portugal may get more time to meet EU targets.
The U.S. equity markets closed with decent gains Friday with S&P 500 up 0.9% and Nasdaq up 1.25%. This morning the Japanese Nikkei index has risen 2.0% after the G20- communiqué Friday simply said that it would be ‘mindful’ of possible side effects from extended periods of monetary stimulus without singling out Japan.
As a result FX markets saw JPY depreciate further and JPY/USD is now close to hitting 100. The euro has weakened slightly to trade around USD1.308 this morning. Commodities have generally gained this morning with both oil and gold prices up.
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