As jitters over Italy’s political situation calmed down yesterday, risk-sensitive assets rallied across the board. Haven bonds and the yen fell, while stocks rose sharply amid hopes that fresh elections may be avoided.
Crude oil prices roared back after the Russia central bank sent signals that they were not very happy about the rapid drop in crude prices, and European markets bounced back as Italian political factions have decided to talk. This comes as there is more evidence that OPEC and Non-OPEC have achieved their goal of getting rid of the global petroleum glut.
What a difference a day makes. As if yesterday didn’t happen, risk was back on the menu today after a renewed effort by Italy’s political parties to form a coalition government eased investor nerves. While the situation is far from being resolved, and major differences between the leaders of the populist parties remain, the fact that they are holding talks to form a coalition government means a new election could be avoided which should calm investor nervous a little.
Sentiment has been dominated in recent times by political turmoil in Italy, which took another twist at the weekend following the breakdown in the coalition between the Five Star Movement and the League.