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Forex Flash: Political update in Italy – Deutsche Bank

Over the weekend, in Italy the embargo on the publication of opinion polls ahead of upcoming elections began on Saturday. An average of polls calculated by Reuters just prior to the blackout showed the centre-left's Bersani on 34.7%, or 5.7 points ahead of Berlusconi. The anti-establishment Five-Star Movement was running third on 16%, with Monti's centrists trailing on 13.6%.

“In the lower house, Deutsche Bank's economists think that an alliance between the centre-left and Monti's centre still appears to be the most likely outcome after the election but the race is closer than it already appears. Meanwhile in the Senate, our economists highlight that the centre-right could block the centre-left from obtaining an outright majority by winning in just two large regions such as Lombardy and Veneto.” write Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank.

A situation where the left wins the lower house but the centre-right controls the Senate could lead to a tail-risk of a hung parliament given that the two houses have equal power. A key swing factor is Monti - a good performance by Monti's list in the Senate might decrease this tail-risk. As we've previously stated, the fear was always that the pro-reform parties would not be well clear by the time the poll embargo began, so it will be interesting to see how Italian markets trade in the lead up to elections on the 24th-25th.

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