On Sunday’s Italian Referendum, and the November Jobs Report

Donald L. Luskin
Friday, December 2, 2016
Markets are already priced for “No.” But “Si” could be another pro-growth electoral surprise.
Strategic view: 

Polls show “No” ahead in Sunday’s Italian referendum, which would potentially cause Renzi’s government to fall, leave Italy’s troubled banks without restructuring, and open the door to the anti-euro populist Five Star Movement. Based on the perfect recent record of polls to fail to predict “outsider” or pro-growth elections world-wide, we’re inclined to think that “Si” will be the surprise winner. A “No” vote is already largely impounded in markets, so we wouldn’t expect much effect. “Si” would cause Italian yields to fall, and the euro to rally. This morning’s jobs report, with a drop in average hourly earning showing absolutely no “wage pressure,” gives the Fed no cause to posture more aggressively after the inevitable hike at the December meeting.