"As we said on Friday, it was clear to us that against a backdrop of global crisis, Italy would defy its government and not allow it the chance to apply European austerity policies. Matteo Renzi has made a wise decision by announcing his dismissal as he does not represent what Italians want.
Some are calling this the third surprise of the year after Brexit and Trump’s election. There is a definite pattern here. It is certainly not the case that Italians do not want any change but what is sure is that they fear the possibility of becoming the new Greece.
Italian banks are bracing themselves as markets begin to price in the lower likelihood of a bailout. From our point of view, this bailout will happen regardless as the eurozone simply cannot allow the Italian banking sector to collapse, especially as this would have consequences for other European institutions.
The single currency is at such a weak point that with every new referendum, rumours of tension and collapse resurface. This is a trend that will weigh heavily on the eurozone throughout 2017.
However, the tensions felt by the single currency are ironically helping the European Central Bank in its currency war against the US dollar. This morning one euro is trading at 1.06 dollar. At Thursday’s ECB meeting Mario Draghi will certainly announce an extension of its QE programme beyond March 2017.”