Upheaval? What Upheaval?

Vote in Italian referendum shows short-term market opportunity is ephemeral.

Here's a quick guide on how to trade political uncertainty in markets: Don't.

This point was driven home by the Italian vote on Sunday to reject key governmental reforms, which has been hailed as yet another victory for a wave of populism surging across the world. Does this have significant implications for the nation's potential growth? Yes. Could it help throw the future of the European Union into question? Yes again. Did markets care? No.

One German trader, Guillermo Hernandez Sampere, head of trading at MPPM EK, summed up the market reaction perfectly: “After Brexit, it took three days for markets to shake it off, with Trump it took three hours, with Italy it took three minutes.”

Sampere's point is important. Markets are growing numb to bursts of social shifts in direction. This is in large part because central banks are backstopping markets, with the European Central Bank poised to prolong its asset-purchase program. But there's more to it. 

Social change is messy and moves at different speeds, and the winds rarely blow steadily in the same direction. Big votes can come as shocking rebukes to the status quo, but they're just the beginning and the aftermath is almost never clean and neat. The initial jolt of the election of a new leader or the rejection of past agreements is followed by much more mundane details, which end up being much more more important for the longer-term outcome of the global economy.

After the Italian vote, traders had a few minutes of concern, as expressed by a weaker euro. But that quickly reversed. 

Quick Recovery

The euro sold off after the Italian referendum results came in but recovered quickly

Source: Bloomberg

Intraday times are displayed in ET.

While there was (and still is) a good deal of concern about the Italian banking system under a new political establishment, the nation's banking shares remained above the average since the beginning of July. 

Blink and Miss It

A 95 billion euro Italian index of financial stocks dipped after the referendum, but it wasn't a sharp move

Source: MSCI

Italian borrowing costs barely rose, even though the nation just lost its prime minister and needs to reignite its stagnant economy.

Small Pinch

Italy's borrowing costs rose a touch after the referendum, but nothing significant

Source: Bloomberg

Social movements are important and will most likely have broader ramifications for the global economy, but they're not easily tradeable in the short term nor decisive in their own right.

Perhaps the Netherlands will be next to challenge the current establishment, followed by France. These votes will no doubt keep therapists busy and could lead to longer-term changes. But when it comes to trading, it's too difficult to try to cash in on the social upheaval, and many investors aren't even going to try. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Lisa Abramowicz in New York at labramowicz@bloomberg.net

    To contact the editor responsible for this story:
    Daniel Niemi at dniemi1@bloomberg.net

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