Economic data releases had a limited impact on markets last week; the same cannot be said for politics.

In the US, J. Powell testified before the House and Senate on Tuesday and Thursday respectively, commenting that the Fed could change its interest rate forecast when they meet in March. In his first address, Powell indicated that there may be four interest rate rises, instead of three; his comments rocked both equity and bond markets which regained ground towards the end of the week. Across the pond, the EU Commission released a draft withdrawal document on how the UK will leave the EU. Unsurprisingly, the status of Northern Ireland post Brexit is the main sticking point. It is unlikely that Mrs May will agree to the current draft which will further protract Brexit negotiations.

Moving onto the main event last week; the Italian general election. Early results suggest a hung parliament but the outcome, although still provisional, delivered a surprising result that will no doubt have bruised the ego of the country’s political establishment. The populist Five Star Movement emerged as the strongest single party with 32% of the vote. The next nearest contender was the Democratic Party led by Matteo Renzi with 18%.

The Five Star Movement is a relatively young party which was founded by comedian Beppe Grillo in 2009. Led by Luigi Di Maio, equally young, at 31, the success at the polls comes from channelling discontent amongst Italy’s political elite and their strong base in southern Italy, especially amongst younger voters. Five Star has been the most popular political party in Italy since early 2017, but they will now face a fresh challenge, as 32% is not sufficient to form a government unless they strike an alliance with other parties. We expect further details to unravel as the week progresses.

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