In the lead-up to Italy’s election on 4 March, Katherine Denham reports for
City AM on the words of European Commission President Jean-Claude Juncker. According to Denham, Juncker said the EU should prepare for the worst-case scenario, amid fears that Italy could be without an operational government if the leading parties don’t form a coalition.
While Juncker warned against a potential staggering of financial markets as a result of a hung parliament, Denham writes that Juncker’s remarks alone “triggered a market wobble as Italian 10-year bond yields ramped up”.
A strong result from either anti-establishment party could also shake up government policy, and could force another “major economy to jump on the protectionist bandwagon”.
For investors, risks could come from the controversial Northern League or populist Five Star Movement, and either party has the potential to damage confidence in the euro, dropping below $1.20 (£0.87) in the short term.
But, says Denham, “despite concerns that anti-establishment parties are crawling out of the woodwork, there’s a prevailing sense of confidence that this looming election will have a limited impact on the eurozone.”
City AM article
Upcoming elections in emerging markets It’s not just Italy that market investors are watching. Natasha Turak for
CNBC writes on the upcoming elections in developing economies, and what emerging markets investors are keeping tabs on.
UBS outlines the elections and economies that have the potential to move markets: Russia; Mexico; Malaysia; Colombia; Brazil; and Hungary. The political opaqueness varies in each one, and the investment bank offers its case for the outcomes and the impact they could have.
In Russia, UBS comments on the upcoming election on 18 March, and puts incumbent Vladimir Putin ahead of his contenders, which the bank reports could receive a total of just 16% of the vote. Investors can be pretty certain of a Putin win, which is unlikely to shake the economy. Any change is likely to be influenced by global energy prices and economic sanctions. The country’s GDP growth has been improving at a modest rate and any structural reform will come if reformist politicians are appointed, UBS says.
In Mexico, the election outcome on 1 July is still relatively unpredictable, according to the UBS, but the bank is leaning towards Andrés Manuel López Obrador to win. If this is the result, Obrador plans to turn against neoliberal economics and pursue greater state involvement in the economy, aiming to end the privatisation of Pemex, a Mexican state oil company, and Mexico’s electricity industry. UBS says either outcome implies the continuity of macro policy, pointing towards “smoother sailing for the Mexican economy and asset prices”.
On 8 April, Hungary will vote in parliamentary elections, and analysts predict right-wing Viktor Orban to stay, cementing the status quo. This implies that for investors, asset prices are set to remain unchanged.
CNBC article
Investors could benefit from a forecasting algorithm
From the European continent to the US, stock traders everywhere are analysing the movements of political parties to inform decisions on investing and the markets – but it’s essentially a guessing game.
The Economist reports that in the US, Jonathan Strong, a former reporter and data software developer 0ptimus have built an algorithm to aid this.
Taking away the guesswork, Strong and 0ptimus have brought together vast quantities of data and a computer system based on the human brain to predict the outcome of congressional votes – which have the power to shift the course of the US economy. The 44 votes it has forecast so far have been correct.
The Economist reports that a hedge fund, which wishes to remain anonymous, used the algorithm for trading derivatives.
In a world of free-flowing information, this system, called Legis, could be precious. The data was collected from detailed voting histories, the characteristics of each congressional member’s district and an ideology score for each politician.
Legis gave 7% probability to the success of repealing Obamacare in the House of Representatives, which allowed its hedge-fund customer to bet profitably on the S&P 500 and a hospital firm.
The age-old forecasting of elections and in turn the markets could be about to change, using technology and data such as Legis has. Would you put your trust in an algorithm?
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