Italy's 5-Star Party Demands Immediate Elections After Failure Of Electoral Reform

Not everyone is satisfied with today"s news that Italy"s early elections will likely be pushed back. Italy"s anti-establishment 5-Star Movement called on Thursday for immediate national elections after the previously reported deal on electoral reform - which would have resulted in the next Italian elections taking place in September, at the same time as Germany"s - among the major parties unraveled.

"There is no chance of starting all over again. The legislature should end here and we should hold immediate elections," said Luigi Di Maio, who is widely expected to be the 5-Star"s candidate for prime minister. He spoke shortly after the lower house voted to send the electoral reform bill back to a cross-party commission for further discussion.

Today"s events have reintroduced confusion about the Italian political timeline: as Reuters adds, upping the pressure for an early election, the parliamentary party leader of the ruling Democratic Party, Ettore Rosato, told reporters he did not know how the coalition government could hold together following the rupture over the voting law.

Also moments ago founder of the Five Star Movement, Beppe Grillo, said in a post on his blog that the Democratic Party now wants to avoid early elections, and regrets that no agreement found on electoral law.

As a reminder, the Five Star (M5S) party has erased the PD"s lead over the past two years, and according to recent polls was neck and neck, if not leading in the polls.

The Ruling Democratic Party and the Anti-Establishment 5 Star Movement Are Polling Neck-and-Neck
Opinion polls on voting intentions at Italy"s general elections

Looking at Italian bonds, there has been a modest reaction to the latest news, although much of that may be a function of the ECB"s "dovish relent" earlier in the day, which has pushed European yields broadly lower.

A Self-Described "Permabull" Explains Why He Is Worried

From Mark Cudmore, a former FX trader who writes for Bloomberg.

I Fear the Complacency

The market is full of counterintuitive price action. This should erode confidence and equities may see a sharp reversal lower soon.

U.S. stocks hit yet another record yesterday. It seems a weird time to suddenly turn bearish, but I’m overwhelmed by a large sense of concern as I gaze across markets.

Equity investors seem to be in denial of the threat to the global economy from Trump’s proposed protectionist policies, and instead solely concentrated on stimulus we’re not seeing yet

In contrast, FX analysts only see possible dollar support from a potential border tax and ignore the dollar negatives that would come from stimulus widening the current account deficit.

All analysis seems to be based on U.S. policy in isolation and assuming that no other country can or will react to Trump’s policies.

Trump wants to specifically raise taxes on imports from China and Mexico. So, in trade terms, mainly cheap clothes, food and oil, leaving expensive or luxury goods alone. That looks like a focus on eroding the consumer’s purchasing power. The U.S economy depends on the consumer, yet the administration calls the policies pro-growth.

The most export-dependent economies in Asia - South Korea and Taiwan - are outperforming their peers so far this year as a trade war beckons.

European bond spreads are widening rapidly. The move is led by Italy due to concern over this week’s constitutional ruling, even though that decision actually significantly reduced the probability of the anti-EU Five Star Movement gaining power.

These contradictions don’t seem to matter though, since stocks are ignoring the stress in other assets anyway, with equity volatility measures plunging. Bonds, FX and emerging markets are less convinced by the wonderful world of equities.

In recent years, I’ve been chided for being eternally optimistic, or a perma-bull, when it comes to markets. I’ve seen the ever-present fear that has pervaded markets as a positive. But now complacency abounds and it seems to hinge on not much more than hope and a prayer - I’m worried.