The Italian government will present their budget on the 27th of September. Financial markets (and EU) are mainly focused on the deficit level of the budget. A budget deficit below 2% could be viewed as positive and act as a relief for the Italian markets. Italian Banks such as Unicredit (UCG IM) and Intesa Sanpaolo (ISP IM) are stocks that might move on any surprise outcome.

On the 27th of September (Thursday), the Italian government, lead by the League and Five Star Movement (5SM), will present their updated budgetary plans to parliament. Financial markets participants are  focused on the deficit level of the budget, with expectations widely dispersed. In general, expectations are that the government will aim NOT to breach the 3% EU budget deficit rule. Italian Finance Minister has earlier tried to reassure EU that the country will tighten its deficit. Reuters write;

Italy understands it must tighten its public finances, its finance minister said on Friday after talks with EU authorities, signaling that ambitious spending plans set out by Rome would not conflict with Brussels’ fiscal rules. Giovanni Tria offered his reassurances after speaking with European Commission Vice President Valdis Dombrovskis on the sidelines of a meeting of European Union finance ministers.

It appears that the general consensus of what is perceived positive is a deficit that is below 2% of GDP. Erik Nielsen, chief economist at UniCredit told CNBC;

“We expect the budget to target a deficit of close to 2 percent of GDP, and if so, markets ought to welcome that, correcting the recent additional concern over an excessive deficit to fulfill all their promises – and with that, I would expect a further tightening of spreads,”

HSBC illustrates the process well in the below image.

Source: HSBC

Uncertainty still persists, as the populistic 5SM has been demanding to get their election pledges included in the budget. The Telegraph released a leaked audio from a 5SM spokesperson;

In a leaked audio clip, Rocco Casalino warned with a foul-mouthed rant of a purge of treasury officials if they didn’t find €10 billion to fund key budget promised including a guaranteed universal income of €780 month for all unemployed Italians.

As the markets are on the edge awaiting the release, any number that is perceived positive could potentially trigger a positive reaction in the Italian markets, especially the beaten banking sector. Banks such as Unicredit, Intesa Sanpaolo, Mediobanca and Banco BPM are the main banks to follow. Below is a chart of Unicredit which is down over 25% since year highs.  

Source: Bloomberg

The related Italian stock market ETF to trade in the US is the EWI US.