The Italian referendum: December 4 is the date but Grillo’s comeback is the story of the day

Yesterday evening the Italian cabinet announced the date of the national vote, December 4, in line with general expectations. With the date set, Renzi has now approximately two months to try a recover as No-party seems to be slightly ahead, according to the most recent pools (51% vs 48%, Source: EMG-Tg La7, on 26^th September).

In a yesterday’s Bloomberg interview, Renzi’s Chief Economic Advisor and Spending Review Commissioner, Yoram Gutgeld, summarized Government position: “We believe that once the people understand the content of the referendum, we will have a positive outcome”. Asked about Prime Minister’s potential resignation, should a “No” vote prevail, he preferred to skip any comment, mentioning that: “This is something that you have to ask him directly”, reinforcing the idea that Renzi has no intention to side apart, regardless of the outcome.

Despite government’s plan to put the vote at center stage of the public debate, Grillo’s comeback, as unique political leader of the Five Stars Movement, is the story of the day. Announced over the weekend during a political convention in Palermo, Sicily, this move is likely to have impact in the referendum debate. After stepping down from his role as Movement’s front man, to be the political guarantor within the party, his official comeback could have impact, and potentially move some of the undecided voters.

From a market reaction perspective, markets are not presently pricing any specific country risk, especially on the credit front. Some asset managers, like Blackrock’s Head of Global Fixed Income Marilyn Watson, are still favoring peripheral sovereign bonds exposure: “despite some short term risk”, she added, while others are way more defensive, claiming that the Italian vote could yet push Europe into a deep structural crisis.

Uncertainty surrounding the December’s vote is high, but the story is now set to be at a turning point: following yesterday’s announcement, Renzi said,” Time is here and now”. Grillo is back into the game. Markets are in waiting mode, for the time being.