Halister News

(Bloomberg) -- While the immediate market impact of the Italian referendum on Dec. 4 may not seem dramatic, hedging for the risk is also relatively easy given little European referendum risk premium seen in asset classes, Morgan Stanley economists including Daniele Antonucci write in client note.

• Bank recommends buying 6-month EUR/USD puts, given dollar strength following the U.S. election outcome and room for idiosyncratic euro weakness
• Despite the upcoming referendum, EUR options volatility is a major outlier, remaining well below average when most DM and EM FX vols are trading above average
• A reversal of the recent correlation pattern on Italian stress, would create an attractive upside in EUR puts
• In other asset classes, Morgan Stanley likes to buy Eurostoxx puts contingent on a weaker euro, buy protection on iTraxx main vs CDX IG and short BTPs vs European credit
• NOTE: BTPs sold off last week on concern a defeat for PM Renzi in the Dec. 4 vote could threaten political stability