Markets Digest Italian Referendum, Brace for Rising Euroskeptic Politics

Italy’s constitutional-reform referendum was defeated on Sunday, rejecting proposals made by Prime Minister Matteo Renzi, who is now stepping down. This is yet another indicator of a wider, European populist political shift and will introduce heightened uncertainty. However, we can see markets are acclimating to the socio-economic questions in recent election cycles: European markets have rose higher since the headlines broke on Sunday. The Stoxx Europe 600 index (SXXP) is currently trading at 341.13, up 0.52%.

One of the victors in Italy is a populist political party called the 5 Star Movement. One of their core components takes a stance against the EU and proposes a rejection of the Euro. Recent polls show that this party has about the same amount of support as the outgoing Prime Ministers Democratic Party. It is important to note the pattern of rising euroskepticism across EU nations, which is captured well by parties also espousing anti-immigration, nationalist rhetoric.

Global markets are showing more metered responses to the political upset. Following the news, the Euro (EURUSD) hit a $1.0505 21-month low in Asian markets, but has since climbed back to $1.0733. Although the ‘no’ vote in the referendum was expected, there is still a looming risk of a systemic crisis that could worsen an already tumultuous Italian banking environment.

The DJIA jumped 93 points, or 0.5%, to 19262 this morning and was lead by financial sectors including Goldman Sachs Group Inc. (GS), J.P. Morgan Chase & Co. (JPM) and Visa (V). The S&P 500 is up 15 points, or 0.68% and is currently trading at 2206.95. The Nasdaq-100 is climbing back from a slight pullback last week, rising 1.03% to 5309.81.  

Upcoming Events & Reports

The next FOMC meeting is scheduled next week, and is widely expected to conclude with interest rate hikes. As of late, these rate hikes have been couched in an optimistic economic outlook of a more deregulated, business-friendly fiscal environment from a Trump administration.

This Thursday, the European Central Bank will meet to discuss a range monetary policy decisions, including quantitative easing and an anticipated continuation of its asset buying program.

Oil

The OPEC rally is continuing the sustained futures climb seen since the November 30 meeting.  Crude oil is up 0.56%, currently trading at $51.96.

Looking at USO, a crude oil tracker, our 10-day prediction model shows sharp declines which ease and reverse around December 13. The fund is currently down 0.65% at 11.5551. Today’s prediction sees support at 10.93 (± 0.08) and resistance at 11.48 (± 0.09). After a cycle of sheds and gains, predicted support and resistance is at 11.51 and 12.10, at the end of the window.

Gold

Following similar trends from last week, gold is selling off and stagnating for the time being. The non-fiat metal is down 10.40, or 0.87% to $1167.40 today.

Using SPDR GOLD TRUST (GLD) as a tracker in our Stock Forecast Tool, we see mostly positive vectors staying under 1%. It is currently trading at 111.22 which is up 0.7, or 0.82%. Today’s predicted low is 111.29 (± 0.46) and the predicted high is 112.71 (± 0.46). The predicted close today is 112.03.  

Volatility

The CBOE Volatility Index (VIX) is down 10.84% at 12.50 with consistent gains predicted. Our 10-day model shows positive vector figures gradually rising from ~3% to ~12%. The predicted close today is 14.38. Today’s predicted lows and highs are 12.28 (± 0.27) and 14.77 (± 0.32), respectively.  Predicted 10-day figures show support contained between ~12 and ~14. Predicted resistance stays between ~15 and ~17.

In other news

FairPoint Communications Inc. (FRP) saw its shares rise 13% after agreeing to an acquisition deal with its rival, Consolidated Communications Inc. (CNSL). The deal was struck at $1.5 billion, including both stock and debt. This deal will likely close halfway through 2017.

Hilton Worldwide Holdings Inc. (HLT) announced a business-unit split, which will manifest as a spinoff of its Park Hotels & Resorts from its Hilton Grand Vacations timeshare business.  Shareholders can expect 2 shares of Park (PK) and 1 share of Hilton (HGV) for every 10 shares they currently own. There will then be a 1-for-3 reverse stock split. The new ticker symbols will start trading on NYSE on January 4, 2017. Hilton Worldwide Holdings Inc (HLT) shares are up 2.75% at 25.955 today.