MARKETS STILL BETTING ON BERSANI/MONTI COALITION - ANALYST
Silvio Berlusconi's resurgence and the rise of a populist comedian have thrown Italy's weekend election wide open, with deep uncertainty over whether the poll can produce the strong government the country needs. Alessandro Mercuri, Interest Rate Strategist at Lloyds Bank WBM believes the market is still betting on a Bersani/Monti coalition.
SHOWS: LONDON, ENGLAND, UK (FEBRUARY 22, 2013) (REUTERS - ACCESS ALL)
1. LLOYDS BANK WBM INTEREST RATE STRATEGIST, ALESSANDRO MERCURI, SAYING:
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(QUESTION: Let's start with Italy. The spreads have behaved pretty well recently. Do you expect that to continue if we get Bersani and Monti?)
Well as you mentioned, the spread has been reasonably well-behaved. Only once we saw it trading about 300 basis points earlier on, on the 11th of February. And I think this behaviour is underpricing the tail risk out of this election. We have a number of - we're good to give uncertainty also because we're being through a two-week blackout in the opinion polls. But I think most market participants are expecting Bersani and Monti to succeed in forging an alliance after the election. And we should see if the electoral outcome is in this line, we should see some relief rally after the election.
(QUESTION: But, Alessandro, negotiations between Monti and Bersani will likely be pretty complex. Is that going to worry the market?)
I think so in a sense that an immediate reaction would be relief but obviously, many commentators have already pointed out to the Prodi experience of the 2006-2008 period when a large Centre-left coalition was unable to push forward hard-nosed reforms and in the end succumbed to Berlusconi in the following election.
(QUESTION: On to the Fed FOMC, I know Bernanke goes before Congress next week. Did the markets read correctly what they heard yesterday?)
Well it was surprising to me that the minutes were such a big market mover. Actually the surprise came on the 3rd of January when the minutes for the December meeting were released. Most analysts, in preparing their outlook for this year, have factored in $85 billion of purchases per month for the whole of the year. And those minutes actually reveal that there was quite of a divide in the FOMC. So Bernanke will have to answer some tough questions in Congress next week.
(QUESTION: Just to finish up, EC projections out today, economic forecast for 2013-2014. Looks like a number of countries will miss their deficit-cutting targets. Is that the main focus for you?)
I think the focus would be on France and Spain in particular. Their current projections see France's deficit at 3.5%, already above what the government says and for Spain, it's 6%. We might see some split patch there and particularly for Spain, if we see a number above 6.5, they will not probably be taken helpfully by the market."
