Stocks Rocked By Italian Politics

It’s been an ugly start to the week for the FTSE, with the index dropping sharply and falling in excess of 100 points after the long weekend. The chief cause of the drop has been negative news from Italy, with the latest political developments weighing on risk sentiment. The pound is trading a little softer today with reports that the UK could continue paying into the EU even after Brexit doing little for sterling.

Coalition government blocked

The unexpected outcome of the Italian elections back in early March, which saw the anti-establishment 5 Star party receive the largest share of the vote threatened to cause disruption in the markets with the FTSE MIB falling and Italian bond yields spiking in the immediate reaction. However, the following day had marked the low for stocks in Milan, which recovered in the months that followed as a 5 Star/League coalition had seemed to be welcomed by the markets.

Today the index has taken out that early March low after a rather dramatic twist saw the Italian president Sergio Mattarella block this coalition and it is now likely that fresh elections will be held - possibly as soon as in the Autumn. The reason this has soured investors risk appetite is twofold; first, prolonged period of uncertainty are nearly always viewed unfavourably by markets and second the 5 Star party may now stand on more of a eurosceptic mandate.

RBS (LON:RBS) drops as government prepares to lower stake

Given the large drop in the FTSE 100 this morning, it is not surprising to see the vast majority of shares trading in the red, but the biggest faller of all is RBS. Reports that the government could be set to reduce its stake in the bank as early as next week has seen in investors look to exit with the share price down by almost 4% on the day. The bank was rescued at the expense of the taxpayer during the financial crisis with a £45B package representing a stake of 70.5% in the firm. The disposal could target a reduction by around 10% of the holding, which given current market prices would deliver proceeds in excess of £3B. However, it looks like the taxpayer is going to have to take a loss on this one, with the total market cap of RBS less than £35B at present.