One Minute Macro Update - Surprise, Surprise: Another Cut for Portugal

Tyler Durden's picture

Overview: Portugal’s downgrade has sent markets negative this morning, with more tightening in China and rising oil prices not helping the situation.

U.S.: Republicans in the House of Representatives today will release a budget plan set to shave off $6T from President Obama’s plan through the next ten years. The proposal will include a phase out of Medicare and an overhauled tax code. Congress has been delaying budget action for some time, with the newest deadline set for April 8th. During a speech yesterday, Fed Chairman Ben Bernanke described the U.S.’s current level of inflation as “transitory.” ISM Non-Manufacturing Composite figure for March will be released this morning estimated at 59.5E v 59.7 prior. February’s score was the highest since August 2005.

Europe: Today Moody’s cut Portugal’s long term sovereign debt rating down one notch to Baa1 from A3 and left the country on watch negative. The rating agency sees Portugal accepting a rescue from the EFSF after June elections. S&P’s rating for the country currently is at BBB- outlook negative. The European Commission has reported that no short term loans would be made available for a country without a full rescue fund request, thus it remains to be seen whether loans can be made without austerity measures being accepted. The news was sobering for Portuguese government officials that have been calling for a bridge loan to get them through steep upcoming maturities. Tomorrow will see the first of five T-bill auctions designed to push the country through upcoming maturities and is planned to raise between €0.75B and €1.0B. PMI data out this morning. The Euro zone saw almost no change in its Composite score at 57.6 v 57.5 prior while the Services figure ticked up to 57.2 v 56.9 prior. PMI Services for the U.K. beat expectations at 57.1 v 52.6E. Other reporting countries showed milder results: 53.3 v 52.2E in Italy, 60.4 v 60.7E in France, and 60.1 v 60.1E in Germany. Peripheral countries showed worse results with Spain at 48.7 v 50.8 prior and Ireland at 51.1 v 55.1 prior. Euro zone retail sales shrunk 0.1% MoM, missing estimates of +0.1%. The results translate to a +0.1% YoY change v +0.6%E.

Asia: China saw another 25bp interest rate hike today. The 1Y lending rate now stands at 6.32% and the 1Y deposit rate at 3.25%. Further tightening is likely. Philippine CPI rose 4.3% MoM v 4.6%E and 0.3% YoY v 0.6%E, providing support for last week’s anti-inflationary interest rate hike. The country also showed a budget deficit of PHP21.5B in February v a PHP13.4B surplus prior. Australian trade balance in February moved to -AUD205MM from +AUD1875 prior, with earthquake-troubled Japan as the country’s #2 trading partner. As expected, Australia’s central bank kept its cash rate target at 4.75%.

From Brian Yelvington of Knight Capital

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CPL's picture

Cuts!  Cuts for Everyone!!!



SheepDog-One's picture

Step right up, pensioners! Get ya hot fresh CUTS right here dont be shy, get in line!

Zina's picture

Eeerr... Not for everyone. Yesterday, Fitch just RAISED the rating of Brazil from BBB- to BBB.

And the Brazilian government didn't like the measure, because it means more speculative capital entering Brazil, more dollars, more euros, what will drive up the Brazilian currency (Real), and an overvalued currency is a curse.

Robot Traders Mom's picture

Its absolutely amazing to me investment firms still have ratings guidelines on their ADV's considering what is considered 'investment grade' these days...


CPL's picture

Don't even get me started on that.  Moody's and their ilk have the same weight as a 50+ cracked out, two dollar dock hooker.


Urban Redneck's picture

So a US rating agency that has somehow managed to avoid the Arthur Anderson treatment uses its "trusted" magic eraser to wipe liquidity from EU credit markets?  Trichet and his hapless cohorts have had over three years to devlop alternative European rating agencies.   

magpie's picture

Yes, maybe something like changing ratings on US states and municipalities several times a month.

The national US rating will of course remain untouched, just to maintain friendly appearances and cause some general hilarity.

Caviar Emptor's picture

Someone proved that deficits don't matter. So why the cuts? 

Josephine29's picture

I guess the Portuguese situation will run and run as it has no government until the June 5th elections. However even the European Central Bank seems to be tiring of backing it up according to Notayesmanseconomics.

One clear corollary of this is that the ECB has created a “false market” in Portuguese government debt. It appears to have forgotten that central banks are supposed to stop false markets rather than create them! I notice that the Dutch central bank governor now appears to agree with me as according to Het Financieele Dagblad he said this.

We are buying paper from banks, from the private sector, and from governments. That is not what we are on earth for. If things turn bad the value decline is for our account.


Miss Expectations's picture

During a speech yesterday, Fed Chairman Ben Bernank described the U.S.’s current level of inflation as “transitory.”

Wizard of Oz:  "I can't come back, I don't know how it works!  Goodbye everybody."



Who really gives a rats ass what a credit rating agency has to say? Remember a credit rating agency's credit rating merely represents "journalistic opinion".

How these "journalistic opinions" can drive an entire industry, but not represent any legal liability for the agency when they fuck up, is beyond me.

Urban Redneck's picture

The arbitrary rating determines the available leverage which underlies the entire fractional reserve banking system.  Theoretically, if all the ratings agencies were to downgrade US debt to junk today, then every US bank would instantly be woefully undercapitalized/insolvent and need to either 1) to massively reduce outstanding loans, or 2) take on massive amounts of Ben’s funny money instead of Timmy’s IOUs to restore the their capital bases.  That’s too much power in the hands of an unelected and unaccountable small group.

overmedicatedundersexed's picture

gotta keep the FRN strong..good by euro hello

gold moving up this AM??

ivana's picture

This is just a foreplay. Before FED starts tightening all others (EU, PIIGS etc) must be down in flames.

ECB and Trichet will, of course, act as fist level of bankster utilities facilitating interest rate rise.

BennyBoy's picture

Aren't the guys demanding higher interest rates the same guys increasing the spread?

Kind of like front running. But legal.

thames222's picture

Portugal, why are you so shady and so incompetent?  Your people must be lazy, although you're only following our example.  Why does everybody feel so sorry for these people?