Euro, shares skid as Italy votes 'no'
The reaction to Sunday''s referendum results were felt severely across markets in early trading yesterday.
The euro fell to a 20-month low yesterday and investors fled riskier assets after Italian Prime Minister Matteo Renzi said he would resign following a stinging defeat on constitutional reform that could destabilize the country''s shaky banking system.
Renzi''s failure deals a body blow to a European Union already reeling under anti-establishment anger that led to the shock exit of the UK from the club in June.
“It''s not very hard to see a new election on the horizon, and it''s not very hard to see the (opposition) 5-Star Movement taking power with stated aims to either leave the EU, drop the euro, or both,” said Mark Wills, head of State Street Global Advisors'' investment solutions group for the Asia Pacific.
“For Italy, establishing stable governance and a plan to guide the nation is of critical importance given the fragility of the economy, challenging policies and the liquidity problems in the banking system.”
The single currency slumped as much as 1.4 percent to US$1.0505, before recovering a bit to US$1.0555.
The drop to its session low was the sharpest since June and opened the way to a retest of the March 2015 trough around US$1.0457.
Analysts at RBCCM argued that, based on what happened in 2012 at the height of the Greek crisis, the risk of a euro zone crisis could see the euro trade as low as US$0.8000.
“It may sound extreme, but if a second euro zone crisis were to hit, with the U.S. dollar at a much stronger starting point, EUR/USD could arguably trade lower still,” they wrote.
The euro slid as much as 2.1 percent to 118.71 yen, but pared some of the losses to trade down 1.2 percent at 119.79 yen.
Investors and European politicians fear the ''No'' camp''s victory could cause political instability and renewed turmoil for Italy''s banking sector, which has been hit by concerns over its huge exposure to bad loans built up during years of economic downturn.
“Forming a stable government in Italy may be difficult, the resuscitation of (ailing lender) Monte Dei Pashci may be impacted, there is some potential that this may create an opening for a secessionist political party,” said Angus Gluskie, managing director of White Funds Management in Sydney.
Renzi''s resignation represents a fresh blow to the European Union, which is struggling to overcome a raft of crises, and was eager for Renzi to continue his reform push in the euro zone''s heavily indebted third-largest economy.
Markets had earlier taken some encouragement when Austria''s far-right presidential candidate was soundly defeated by a pro-European contender, confounding forecasts of a tight election.
The European Central Bank meets Thursday amid much speculation it will announce a six-month extension of its asset buying program and widen the type of bonds it can purchase.
- Nampa/Reuters
Renzi''s failure deals a body blow to a European Union already reeling under anti-establishment anger that led to the shock exit of the UK from the club in June.
“It''s not very hard to see a new election on the horizon, and it''s not very hard to see the (opposition) 5-Star Movement taking power with stated aims to either leave the EU, drop the euro, or both,” said Mark Wills, head of State Street Global Advisors'' investment solutions group for the Asia Pacific.
“For Italy, establishing stable governance and a plan to guide the nation is of critical importance given the fragility of the economy, challenging policies and the liquidity problems in the banking system.”
The single currency slumped as much as 1.4 percent to US$1.0505, before recovering a bit to US$1.0555.
The drop to its session low was the sharpest since June and opened the way to a retest of the March 2015 trough around US$1.0457.
Analysts at RBCCM argued that, based on what happened in 2012 at the height of the Greek crisis, the risk of a euro zone crisis could see the euro trade as low as US$0.8000.
“It may sound extreme, but if a second euro zone crisis were to hit, with the U.S. dollar at a much stronger starting point, EUR/USD could arguably trade lower still,” they wrote.
The euro slid as much as 2.1 percent to 118.71 yen, but pared some of the losses to trade down 1.2 percent at 119.79 yen.
Investors and European politicians fear the ''No'' camp''s victory could cause political instability and renewed turmoil for Italy''s banking sector, which has been hit by concerns over its huge exposure to bad loans built up during years of economic downturn.
“Forming a stable government in Italy may be difficult, the resuscitation of (ailing lender) Monte Dei Pashci may be impacted, there is some potential that this may create an opening for a secessionist political party,” said Angus Gluskie, managing director of White Funds Management in Sydney.
Renzi''s resignation represents a fresh blow to the European Union, which is struggling to overcome a raft of crises, and was eager for Renzi to continue his reform push in the euro zone''s heavily indebted third-largest economy.
Markets had earlier taken some encouragement when Austria''s far-right presidential candidate was soundly defeated by a pro-European contender, confounding forecasts of a tight election.
The European Central Bank meets Thursday amid much speculation it will announce a six-month extension of its asset buying program and widen the type of bonds it can purchase.
- Nampa/Reuters
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