Italy Grabs Center Stage (Again) As Banks, Bonds Crushed On Euroskeptic Appointments

The geopolitical landscape is a bit like a game of Whac-a-Mole for investors these days – if it’s not one thing popping up to weigh on sentiment, it’s another.

The week began with trade jitters, and no sooner did we get a break in the negative headlines on that front (if only because Trump was too busy dealing with the domestic border issue to worry about Xi) than Italy made its way back to the frontburner.

On Thursday, a pair of euroskeptics were appointed to Italian parliamentary positions as Alberto Bagnai (who apparently penned not one, but two books calling for the dismantling of the EMU) was named chairman of Italy’s Senate Finance Committee and  Claudio Borghi was appointed head of the Lower House budget panel.

“The pair were not tapped for any ministerial positions that would give them a big say within the government, but their rise to key legislative posts could raise renew concern in the markets about Italy’s stance within the eurozone,” FT writes.

Borghi is one of Salvini’s top economic advisors.

And speaking of Salvini, he’s been kicking up a ton of dust on the immigration front recently and Thursday was no exception. Here’s Bloomberg, recapping:

In an interview with RAI television Thursday, Salvini, who is also deputy prime minister, said Italy might review its contributions to the EU budget if it isn’t given more support. La Repubblica newspaper reported that he also raised the prospect of setting up controls on Italy’s land borders at a meeting with Prime Minister Giuseppe Conte in Rome on Wednesday.

“We can’t pay 6 billion a year to the EU and then just have someone poke us in the eye,” Salvini told RAI. “I wouldn’t like to be forced to reopen discussion on this contribution.”

Exactly none of that is what markets want to hear, especially coming as it does just 10 days after Finance Minister (and man who is not named Paolo Savona), Giovanni Tria reassured markets that Italy has no plans whatsoever to leave the euro.

And so, Italian banks are getting crushed, falling more than 2% at one point, while broader Italian equities are sharply lower as well.

BTP-bund spread wider by some 16bps:

The Italian front end is under pressure as well and individually, the banks are a mess:

I’ll just go ahead and leave you with the following visual I included in a post back on June 11 when Tria bolstered Italian assets with promises about the country’s commitment to the euro…