Fitch Downgrades Portugal To Junk On General Strike Day

Just a step behind the Chinese as usual, and just in time to kill a modest EURUSD rally. Also on the same day as the first mass strike in Portugal which reminds us that everyone will want a piece of the debt reduction pie.

From Reuters:

Rating agency Fitch downgraded Portugal's rating to junk status on Thursday, citing large fiscal imbalances, high debts and the risks to its EU-mandated austerity program from a worsening economic outlook.

 

Fitch cut Portugal to BB+ from BBB-, which is still one notch higher than Moody's rating of Ba2. S&P still rates Portugal investment grade.

 

Fitch said a deepening recession makes it "much more challenging" for the government to cut the budget deficit but it still expects fiscal goals to be met both this year and next.

 

"However, the risk of slippage - either from worse macroeconomic outturns or insufficient expenditure controls - is large," Fitch said.

 

Portugal's 10-year bond yields rose sharply to around 13.15 percent after the downgrade from 12.71 percent late on Wednesday, with the spread over benchmark German bunds rising 21 basis points on the day to 1,095 basis points.

 

Portugal sought a 78-billion-euro bailout from the European Union and IMF earlier this year and has adopted sweeping austerity measures to bring public accounts under control.

 

Under the loan programme Portugal must cut the budget deficit to 5.9 percent of gross domestic product this year from around 10 percent in 2010. Next year it must cut the deficit further to 4.5 percent.

 

Fitch said the state-owned "enterprise sector is another key source of fiscal risk" and has caused a number of upward revisions to the country's debt and budget deficit figures this year. The government has said there was an unexpected fiscal shortfall of about 3 billion euros this year.

 

"Given these downside risks, Fitch sees a significant likelihood that further consolidation measures will be needed through the course of 2012," Fitch said.

In the meantime, Syntagma goes to Lisbon where, unlike Italy, austerity does not mean increasing the retirement age by 48 days every year for the next 15.

Portuguese workers launched a general strike on Thursday to protest against austerity measures imposed as the price of an EU bailout designed to keep Portugal afloat and stem a deepening euro zone debt crisis.

 

Planes were grounded, trains halted and public services interrupted as workers across the nation of 11 million protested against job losses, tax and pay cuts agreed between Portugal and the troika of lenders -- the European Commission, European Central Bank and International Monetary Fund.

 

All international flights to and from Lisbon and Porto were cancelled for the duration of the 24-hour walkout, according to the website of the airport authority ANA, and only minimum services connecting mainland Portugal with the islands of Madeira and the Azores were operating.

 

"The strike is general, the attack is global!" chanted protesters in a picket line at the Lisbon airport, referring to what unions say is an attack on workers' rights.

Snapshot of Portugese bond spread to Bund viagra: