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LGT Navigator: As expected, Italian voters turn right

September 26, 2022

According to the latest projections, the far-right "Fratelli d'Italia" party led by Giorgia Meloni is likely to win a majority of votes in Italy, as expected in advance. The political slide to the right could also shake the European Union and cause political and economic instability. On the stock markets, the latest economic data already caused heavy losses on Friday.

As expected, Italian voters turn right

The alliance around the radical right-wing party “Fratelli d'Italia” (Brothers of Italy) can count on a governing majority in parliament after the election in Italy. According to projections, the alliance led by Giorgia Meloni is likely to become the strongest force with a share of the vote of around 26%. Meloni's coalition partners from the right-wing populist Lega and the conservative Forza Italia, on the other hand, slipped in voters' favor. The Social Democrats, who had previously been in government, have already acknowledged the right-wing's victory and intend to go into opposition. The party of the "Brothers of Italy" was only founded in 2012 by a splinter group from Berlusconi's party “Il Popolo della Liberta” (The People of Freedom) and has its roots on the far right of the Italian political spectrum with links to Italy's fascist legacy from the Mussolini era. 

Capital markets driven by recession fears

In the financial markets, the election result in Italy is likely to cause additional unrest. Already on Friday, heightened fears of recession had put pressure on share prices on Wall Street, and in Asia, too, the downward trend continued at the start of the week. The Dow Jones Industrial fell at times by -2.7% well below the mark of 30'000 points and reached the lowest level since the end of 2020. In the end, Friday resulted in a daily loss of -1.62% and the Dow went out of trading at 29'590.41 points. The S&P 500 closed -1.72% lower at 3'693.23 points and on the Nasdaq, the indices fell by about -1.7%.

In the bond market, the yield on ten-year US government bonds climbed at times to 3.83% a 12-year high and is currently quoted at 3.75%. In view of the sharp rise in interest rates on the capital markets, the price of gold recently reached its lowest level since April 2020. At the beginning of the week, the troy ounce of the precious metal was trading at around USD 1'637. On the foreign exchange market, investors fled into the US dollar and the euro fell to its lowest level in around 20 years.

The stock markets in the Asia-Pacific region are partly under strong pressure at the start of the week. In Tokyo, the Nikkei 225 trades around -2.4% lower and the South Korean Kospi loses about -2.7%. The Hang Seng Index in Hong Kong, however, is slightly up at the end, driven by a recovery in tech stocks. The Hang Seng Tech Index rises by more than +2%. In mainland China, the Shanghai Composite is down slightly, while the Shenzhen Component is up around +0.6%. MSCI's broadest index of Asia-Pacific equities outside Japan falls around -1.2%.

European companies are becoming increasingly pessimistic

S&P Global's private sector purchasing managers' index signaled a further deterioration in corporate sentiment in the euro area ­ both in the industrial and services sectors. The PMI slipped to 48.2 in September from 48.9 points the previous month, registering the lowest reading in 20 months. According to S&P chief economist Chris Williamson, a recession in the eurozone must be expected in view of the deteriorating business situation and increasing price pressure due to rising energy costs.

The same picture was painted by the PMI for the UK's services and manufacturing sector. the PMI fell by a larger-than-expected 1.2 points to 48.4 in September - the lowest level since January 2021. S&P commented, “The UK's economic malaise worsened in September.”

Economic Indicators September 26

MEZ Country Indicator Last period
08:00 GE GDP Q2 (q/q) +0.1%
10:00 GE Ifo Business Climate Index (September) +88.5
14:30 US Chicago Fed National Activity Index (August) +0.27
15:00 EZ ECB President Lagarde speaks
19:00 GE Bundesbank President Nagel speaks


Earnings Calender September 27

Country Company Period
SZ Georg Fischer Capital Markets Day


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