European stocks and the euro rebounded sharply yesterday as investors were reassured by the speed of Italian Prime Minister Matteo Renzi’s resignation after losing a crunch referendum.
The region’s markets began the day in negative territory, with Milan tumbling 2%, but recovered somewhat with sentiment soothed also by the defeat of the far right in Austria’s presidential election.
The referendum verdict sent the European single currency crashing to $1.0506 — the lowest level since mid-March 2015 — before bouncing back over $1.07.
Equities also staged a recovery.
Frankfurt jumped 1.6% at 10,684.83 points, Paris gained 1.0% at 4,574.32 points and London added 0.2%, at 6,746.83 points, reversing initial losses.
Milan stocks closed down 0.2%, with banking shares slumping from 3 to 8%.
“The Italian referendum is the major story that will dominate market moves throughout Monday, after Renzi left his position after a bruising defeat,” said GKFX analyst James Hughes.
“The initial market reaction was to the downside, but Renzi’s decision to leave so quickly after the result meant that added clarity drove the euro and European equity markets to the upside.”
Renzi stood by his promise to resign after his attempt to change the constitution was overwhelmingly rejected in Sunday’s poll, leading to fears about the future of one of the eurozone’s biggest economies.
Populists in Italy and throughout Europe rejoiced at Renzi’s downfall, in the wake of anti-establishment poll shocks in both Britain and the United States.
Investors were comforted somewhat after Austria’s anti-immigration and euro-sceptic Norbert Hofer was defeated in his bid to become the EU’s first far-right president over the weekend.
Greens-backed independent candidate Alexander Van der Bellen swept to victory on Sunday.
Italy’s referendum result also sent the yield on Italy’s 10-year government bonds jumping to as high as 2.062% — the highest since Thursday — from 1.902% Friday.
Analysts remain concerned that political instability could scupper Italy’s efforts to resolve a bad loans crisis in the banking sector and spark fresh eurozone turmoil.
“Italian risk has undoubtedly increased with the banks no longer the only major threat,” said Craig Erlam at currency trading group Oanda.
“Italy now poses a great threat to the European project and with elections now likely to take place next year, alongside those in the other two largest economies in the eurozone, there’s likely to be a lot more talk once again of a break-up with ‘Itexit’ this time possibly being the straw that breaks the camel’s back.”
US stocks higher early yesterday thanks to gains by petroleum-linked equities, with investors shrugging off the Italian referendum adding risk to eurozone politics.

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