Italian Referendum Sparks Risk Asset Selloff

The ambitious reforms proposed by Prime Minister Matteo Renzi have ended in failure after Italian voted no in the referendum, paving the way for Renzi to resign and a new government to be formed.  According to some early stats, the “yes” vote lost by as much as 20.00%, indicating that anti-government sentiment continues to boil over across Europe.  Beppe Grillo, leader of the Five Star Movement, is already calling for new elections after polls show his party running neck and neck with Renzi’s Democratic Party (PD).  The bigger problem with the result is that the ensuing political instability could make it more difficult for struggling Italian banks to recapitalize and restructure.  The result has been a sharp selloff in EURUSD since the open, with the pair reaching the lowest point since March of 2015.

In a positive sign for the Chinese economy despite the multitude of looming risks, the services sector showed another month of strong growth.  The Caixin Services Purchasing Managers’ Index rose to 53.1 in November, marking the highest print since July of 2015.  Gains were primarily driven by climbing new orders, better forward looking expectations, and increasing employment according to the index.  All this comes at a time when officials are struggling to contain capital flight and a slowdown in the industrial sector.  Despite massive stimulus efforts, the pace of capital outflows continues to trouble policymakers as they are forced to spend reserves in an effort to defend the Yuan against an even bigger decline.  After retreating for several sessions, USDCNH is back on the climb, pulling back from earlier session highs.