Accurate Forecasts of Italian Election and Euro

Prior to Italy’s General Election in March 2018, we made an out-of-consensus forecast that Italy’s smaller right-leaning parties would outperform polls, upsetting the political order in Italy and Europe.  We predicted that the Euro’s appreciation would essentially stop due to the unexpected shift in Italian politics.  The election forecast was based on Social Media Influence (SMI) which has accumulated an impressive trackrecord, including forecasting victories for Trump and Macron when such candidates were underdogs.

An excerpt from the forecast prior to the Italian Election:

Specifically, the highlighted risk is in the upcoming Italian General Election on March 4, 2018. Betting markets and polls show a mixed race with a variety of potential outcomes likely but with a bias towards the largest three mainstream political groups. SMI forecasts differ in that smaller and lesser well known right-wing parties are seen as outperforming poll expectations. Their expected outperformance of polls and the fact that they have entered the leading coalition should be enough to jumpstart political risk perception.

Appreciation of Euro and Euro-Assets should pause as markets begin to reevaluate risk in this asset category that has handily outperformed due to declining political risk.

Since the election, Italian politics have often entered international headlines.  The rise of right-leaning politicians have thrown off much of the consensus assumptions concerning Europe’s economic future.  Everything from immigration policy to the Euro have returned to center stage.  Interestingly, the markets were extremely concerned over right-leaning parties winning elections in France, the Netherlands and Germany.  SMI consistently downplayed these risks, which were unable to shake our then positive view of the Euro.  In contrast, SMI’s take on Italian politics saw smaller right-leaning parties being a more significant threat — enough to invert our Euro call.

Since that last report, the Euro/USD has fallen from 1.23 to 1.16.  This decline was the most significant for the Euro since 2015.