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Portuguese Spreads Soar As Cabinet Unravels, "There Are Reasons To Be Concerned" JPM Warns

Tyler Durden's picture




 

Following finance minister Vitor Gaspar's resignation, the foreign affairs minister Paulo Portas has just added to Prime Minister Coelho's problems and quit in light of who the PM chose as replacement for Gaspar. Gaspar was one of the key Portuguese policy makers to oversee the country’s bailout program, and in his letter of resignation, noted that he had lost the public's support to continue with the deeper-than-expected recession and above-target public deficit developments. Mr. Gaspar's replacement will be the current treasury secretary, Maria Luís Albuquerque, and that is what sparked the Portas to exclaim, "the Prime Minister decided to follow the path of mere continuity at the Finance Ministry. I respect that but disagree." Coelho is due to make a statement at 1900GMT but in the meantime, Portugal's bond market has spiked its most in 10 months relative to its risky neighbor Spain back above 200bps.

 

And here is JPM warning that the situation in Portugal may turn from bad to worse:

There are increasing reasons to be concerned about developments in Portugal, which has been the ‘forgotten country’ for much of the crisis. The announcement this afternoon that Paulo Portas, the foreign minister, has resigned significantly escalates our near-term concerns. Portas is leader of the CDS-PP, the junior partner in the two-party governing coalition. He has made a statement indicating that his resignation is one of personal conscience, and refusing to comment on the prospects for the Government. However, given his position, his departure will clearly have a significant impact.

 

The context is important here. We have flagged previously that there were dangers in the division between the two governing parties. CDS-PP has taken a strategy of disassociating itself from some measures which the Government has sought to implement, attempting to deflect blame onto the Prime Minister, Passos-Coelho, and the outgoing Finance Minister, Gaspar. There has always been a risk that the party would find remaining in Government too politically uncomfortable and seek to withdraw support when it sensed that the balance of its interests was shifting. What was needed was a proximate cause. We were worried that the Constitutional Court ruling on the Budget earlier this year may provide the spark, and have remained concerned about local elections in September. It is possible that Finance Minister Gaspar’s departure yesterday, and the reshuffle this week will prove to be the trigger instead. Portas has claimed that Gaspar’s departure opened an opportunity to explore a new path in terms of economic and fiscal policy, and that the Prime Minister has closed this opportunity by immediately appointing Gaspar’s deputy to the post.

 

At this stage it is still too early to tell how things will play out. These moves may prove to be about no more than tactical positioning, designed to highlight concerns about Alberquerque, the new Finance Minister, and to provide more leverage in a new Cabinet. In this scenario, we would expect the CDS-PP to use its moment of leverage to argue that Portugal should take a different approach ahead of the next Troika review on July 15th. There is some chance that the situation could be more serious however, and Portugal will be worth watching very closely in the next few days. The opposition Socialists have requested a meeting with the President for early afternoon tomorrow, and we may get more details from CDS-PP or the Prime Minister in the mean-time. If for whatever reason the CDS-PP were to withdraw its support, the Government would control only 108 seats in the 230 seat parliament. It would then need to either seek some broader coalition arrangement, or call new elections. At the moment risks appear elevated.

 

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Tue, 07/02/2013 - 12:55 | 3714366 de3de8
de3de8's picture

It's back.

Tue, 07/02/2013 - 13:00 | 3714384 Hippocratic Oaf
Hippocratic Oaf's picture

These motherfuckers need to understand that we're not into bad news around a major holiday!

Sell in May......blah, blah, blah

Tue, 07/02/2013 - 13:04 | 3714393 Herd Redirectio...
Herd Redirection Committee's picture

First domino to drop... PIIGS

Or USUK?

Tue, 07/02/2013 - 13:06 | 3714403 hugovanderbubble
hugovanderbubble's picture

Spain is in default

Spanish Debt Haircuts coming

Spanish Deposits over 100.000 euros haircuts to be applied next 2014

Spain will need to use another 60,Bn Euros from the Precautionary Credit Line (PCCL)

 

EURUSD HAS TO BE TRADING AT 1.18-1.20

Tue, 07/02/2013 - 13:12 | 3714425 knukles
knukles's picture

Everybody please stop with the bitching, pissing, moaning, criticizing everything.
The people who matter tell us everything's just fine.

Listen!
Take a deep breath and just listen.

<crickets>

 

oh shit....

Tue, 07/02/2013 - 13:15 | 3714437 derek_vineyard
derek_vineyard's picture

no worries--paint the taper

Tue, 07/02/2013 - 14:49 | 3714753 negative rates
negative rates's picture

All aboard, next train won't leave for some 24hrs.

Tue, 07/02/2013 - 13:30 | 3714495 Satan
Satan's picture

After Cyprus how many 100000 Euro bank accounts do you think there are in Spain?

Tue, 07/02/2013 - 13:11 | 3714420 Martial
Martial's picture

Good. Let's get this show on the road.

Tue, 07/02/2013 - 12:59 | 3714378 shankster
shankster's picture

Just when you thought it was safe to go outside...

Wed, 07/03/2013 - 08:24 | 3717222 Ban KKiller
Ban KKiller's picture

We are going to see the mombacho volcano this morning. Is  it safe our will it blow?

Portugal is a safe haven for? Oh yeah, nothing. Except silver?

Tue, 07/02/2013 - 12:59 | 3714379 Dr. Engali
Dr. Engali's picture

Sound like a good reason to pound gold and to add a percentage point to the S&P.

Tue, 07/02/2013 - 13:06 | 3714407 disabledvet
disabledvet's picture

yep

Tue, 07/02/2013 - 13:23 | 3714465 StacksOnStacks
StacksOnStacks's picture

Sleight of hand.

Tue, 07/02/2013 - 13:02 | 3714385 Panafrican Funk...
Panafrican Funktron Robot's picture

Reminder:  Portugal is #14 in the world in official gold holdings, weighing in at 382.5 tonnes.  90% of their forex reserves are gold.  This is the highest percentage in the entire world.  #2 in the world (coming in at 82% of forex reserves):  Greece!

Tue, 07/02/2013 - 13:06 | 3714392 fonzannoon
fonzannoon's picture

so why don't they leave the euro and offer a gold backed currency?

How about those miners today? I thought the bottom was in (kito).

Tue, 07/02/2013 - 13:07 | 3714408 disabledvet
disabledvet's picture

because the euro IS the gold back currency. "they're moving the gold around." at some point though...it ends up at the EYE EM F.(ed)

Tue, 07/02/2013 - 13:21 | 3714456 CPL
CPL's picture

It's never been gold backed.  It's been the same dysfunctional model all governments run by now.  There is no more gold in Portugal than there is in BreX's Borneo rain forests.

Tue, 07/02/2013 - 13:39 | 3714525 Captain Willard
Captain Willard's picture

The Escudo was gold-backed before WWII under the Salazar Regime.

We may live to see another gold-backed Escudo.

Tue, 07/02/2013 - 13:06 | 3714406 asteroids
asteroids's picture

If you were Germany or France you are probably praying that gold somehow falls into your hands. Didn't Cyprus have to fork over its gold?

Tue, 07/02/2013 - 13:25 | 3714472 Unknown Poster
Unknown Poster's picture

The rest of their forex reserves are gone.

Tue, 07/02/2013 - 14:06 | 3714585 kchrisc
kchrisc's picture

But where is that gold?! NY? London? If so, it's gone.

Tue, 07/02/2013 - 18:12 | 3715493 SeattleBruce
SeattleBruce's picture

Corzined

Tue, 07/02/2013 - 13:12 | 3714388 Yen Cross
Yen Cross's picture

    " Here's Johnny"...

Tue, 07/02/2013 - 13:03 | 3714389 hugovanderbubble
hugovanderbubble's picture

Thanks for sharing Tyler.

 

EURO RISK OFF COMING

Tue, 07/02/2013 - 13:24 | 3714468 CPL
CPL's picture

There's no risk.  The currency wasn't worth anything to begin with thereby no risk.  All that matters is oil and PM's and not the economically challenged ETF/ETN market either.

 

Otherwise expect a 'bail in' soon, dead serious about that to.  Cyprus was a 'success', therefore the model will be applied to all NATO partners via G8 agreements two weeks ago.  So close your accounts and cash out ASAP if in portugal.

Tue, 07/02/2013 - 13:06 | 3714402 buzzsaw99
buzzsaw99's picture

The real question is why does Gaspar give a flying fuck about public support? Nobody else does.

Tue, 07/02/2013 - 13:25 | 3714474 CPL
CPL's picture

The public Gapar knows.  Those people outside of the building the decision is made don't matter.

Tue, 07/02/2013 - 13:14 | 3714430 AccreditedEYE
AccreditedEYE's picture

The U.S. Federal Reserve has vanquished "concern"

Tue, 07/02/2013 - 13:22 | 3714459 TrustWho
TrustWho's picture

I think we need Daddy Bernanke to speak to the world. He needs tell the world "Hakuna Matata" and please join me (Bernanke) in singing the Lion Kings lyric over and over again until all world citizens join hands. If not, this situation might just get out of control.

Tue, 07/02/2013 - 13:51 | 3714461 THE DORK OF CORK
THE DORK OF CORK's picture

Ireland & Portugal have probably the nastiest euro energy balance sheets on the continent.

 

http://mazamascience.com/OilExport/output_en/Sources_BP_2013_consumption_mtoe_PT_MZM_NONE__.pdf

 

If Portugal & the others defaults / inflates the oil might come back..........subtracting oil from the emerging BRIC markets.

 

Then things will get really interesting.

 

Contrast this with a country that has inflated recently.

http://mazamascience.com/OilExport/output_en/Sources_BP_2013_consumption_mtoe_BY_MZM_NONE__.pdf

 

In terms of energy the only thing keeping the western european states of the UK , Ireland Portugal & Spain shit together is imported surplus coal from the US.

The UK is now a massive importer of steam coal but Iberia has increased its albeit small imports by a huge amount.

 

http://mazamascience.com/OilExport/output_en/Exports_BP_2013_coal_mtoe_PT_MZM_NONE_auto_M.pdf

 

http://mazamascience.com/OilExport/output_en/Exports_BP_2013_coal_mtoe_ES_MZM_NONE_auto_M.pdf

 

 

Tue, 07/02/2013 - 13:23 | 3714463 johny2
johny2's picture

please, can they at least wait their turn, with all the things going on around, Tyler must be running out of time to write about China, Japan, NSA, Brazil, Turkey, Syria, France, Italy, Greece, Argentina, Egypt, India.... it is challenging even to read fast enough to keep the track of everything.

Tue, 07/02/2013 - 13:31 | 3714503 Satan
Satan's picture

"Please, do not worry."

Tue, 07/02/2013 - 14:15 | 3714619 americanspirit
americanspirit's picture

No 'please' about it Satan - that's an order, not a request.

Ben & Barack

Tue, 07/02/2013 - 14:13 | 3714611 Big Ben
Big Ben's picture

And just yesterday Stolper issued a EURUSD long recommendation with a 1.35 target. How does he do it?

Tue, 07/02/2013 - 14:48 | 3714746 thisandthat
thisandthat's picture

Portuguese prime minister to address nation in a while and socialist leader, António José Seguro, soon after.

Government likely felt and general elections to follow.

Tue, 07/02/2013 - 14:57 | 3714797 thisandthat
thisandthat's picture

Well, no, he won't resign.

Tue, 07/02/2013 - 14:51 | 3714764 EU victum
EU victum's picture

It is now full throttle smoke and mirrors in th Eurozone until Merkel is reelected, the German sheeple, as most social- and welfare state EUSSR, don't have the slightest idea what is over their heads after September!

Tue, 07/02/2013 - 14:59 | 3714812 Mototard at Large
Mototard at Large's picture

Do not worry.  Do not adjust your sets.  Europe is fixed, the crisis is over and all is well!

It must be true. José Manuel Barroso says the crisis is over and the European Commission would not lie to us - unless they were really serious!

Tue, 07/02/2013 - 15:26 | 3714915 enloe creek
enloe creek's picture

any good movies out this weekend, Oh shoot I'm going hiking in the mountains anyway. nevermind

Tue, 07/02/2013 - 16:51 | 3715200 q99x2
q99x2's picture

4 years of lying about a recovery and now we have this.

Wish I had money to fly to Egypt to protest Obama.

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