Europe: Politics warming up – RBC CM

Research Team at RBC Capital Markets, suggests that 2017 will be a busy year for European politics as in the UK, PM May has said that she will trigger Article 50 by end-Q1.

Key Quotes

“In the Netherlands, elections are due to be held on 15 March 2017; the far right Eurosceptic party PVV has led in ~90% of polls this year (beating current senior coalition party VVD) although never with enough seats for an outright majority. In France and Germany, elections are due in April/May 2017 and by October 2017, respectively.

But ahead of all that comes Italy’s constitutional referendum, which is set for December 4. The referendum has attracted bouts of attention. Teasing out what is priced in is complicated by other event risk in the coming weeks (the US Election on Nov 8, the ECB on Dec 8, the FOMC on Dec 14). The best we can do is look at 1m forward vol as it was early last week, when the 1m window included the US election and the 2m window did not include the FOMC.

Having already underestimated one European referendum, it seems that some are overly eager to avoid the same mistake.”