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