ETX Capital Daily Market Bite, 3rd July, 2013; Portugal Political Crisis Spooks European Markets
July 3, 2013 8:32 am
July 3rd, 2013, Daily Market Bite from Ishaq Siddiqi Market Strategist
Political turmoil in Portugal pushes the country’s 10-year bond yields to climb to 8% for the first time since November 27, sparking fears the country will have to request help from the ECB. Two high profile ministers resigned from Portugal’s government over the past two days, triggering worries of instability within the government; and today, there are reports that more ministers are expected to step-down as the country struggles to stay on top of its austerity plan. In light of these developments, the ECB’s policy meeting tomorrow in that case will be this week’s show stealer as the pressure is on Mr. Draghi to respond to the state of affairs in Portugal’s crumbling government.
Portuguese media are today reporting that Agriculture minister Assuncao Cristas and Social Security minister Pedro Mota Soares are set to resign — both are part of the Conservative Popular Party, the junior coalition partner whose leader Paulo Portas quit last night. Spanish and Italian bond yields are spiking in reaction; the euro gets knocked down by rivals, now below $1.30 while in stock markets across the region, Portugal’s PSI is currently down around 6.7% with banks leading the fall, while core European indices are all posting losses overt 100 points. Peripheral stock markets are being battered with Spanish and Italian stocks tumbling. In a sign of risk-aversion, core government bonds [seen as safe-haven investments] are in favour with German bunds up around 78 ticks and UK gilts up around 69 ticks.
The political uncertainty in Portugal has really spooked markets as the spectre of another bailout for the country increases on fears of a collapse of the government will result in the country not being able to meet its loan obligations with its international creditors. This could trigger a sovereign default and potential removal from the euro zone, with contagion spreading across to Greece, a country that is currently struggling to secure its next tranche of aid money.
Staying on political uncertainties, Nymex oil prices soared above $100 mark, its highest level since April 2012 on the current situation in Egypt. The country’s government and army are set for a stand-off after both sides refused to back down over an ultimatum set by the army for President Morsi. Morsi has rejected stepping down, warning his removal would spark bloodshed across the country. Morsi’s speech last night provoked clashes between protestors and Morsi-supporters who have taken to the streets of Cairo since the weekend. The situation there remains fluid, with investors worried that we could see a repeat of the crisis in the country back in 2011 which saw the removal of Hosni Mubarak.
Overnight in Asia, China’s poor official non-manufacturing PMIs shook up investors, overshadowing the HSBC China services PMI which was a touch better. Market participants viewed the data as another signal that China’s economy is facing a slowdown which could last much longer than previously expected; this sparked the Australian central bank to signal that it could continue cutting interest rates as long as the country’s mining industry remains under pressure owing to the slowdown in China — the Aussie dollar fell sharply on the back of those comments. In the US on Tuesday, strong factory orders and bumper cars sales in the US for some global auto makers was seen as investors as another reason for the Fed to ease its foot off the stimulus pedal.
July 3rd, 2013, Daily Market Bite from Ishaq Siddiqi Market Strategist
Political turmoil in Portugal pushes the country’s 10-year bond yields to climb to 8% for the first time since November 27, sparking fears the country will have to request help from the ECB. Two high profile ministers resigned from Portugal’s government over the past two days, triggering worries of instability within the government; and today, there are reports that more ministers are expected to step-down as the country struggles to stay on top of its austerity plan. In light of these developments, the ECB’s policy meeting tomorrow in that case will be this week’s show stealer as the pressure is on Mr. Draghi to respond to the state of affairs in Portugal’s crumbling government.
Portuguese media are today reporting that Agriculture minister Assuncao Cristas and Social Security minister Pedro Mota Soares are set to resign — both are part of the Conservative Popular Party, the junior coalition partner whose leader Paulo Portas quit last night. Spanish and Italian bond yields are spiking in reaction; the euro gets knocked down by rivals, now below $1.30 while in stock markets across the region, Portugal’s PSI is currently down around 6.7% with banks leading the fall, while core European indices are all posting losses overt 100 points. Peripheral stock markets are being battered with Spanish and Italian stocks tumbling. In a sign of risk-aversion, core government bonds [seen as safe-haven investments] are in favour with German bunds up around 78 ticks and UK gilts up around 69 ticks.
The political uncertainty in Portugal has really spooked markets as the spectre of another bailout for the country increases on fears of a collapse of the government will result in the country not being able to meet its loan obligations with its international creditors. This could trigger a sovereign default and potential removal from the euro zone, with contagion spreading across to Greece, a country that is currently struggling to secure its next tranche of aid money.
Staying on political uncertainties, Nymex oil prices soared above $100 mark, its highest level since April 2012 on the current situation in Egypt. The country’s government and army are set for a stand-off after both sides refused to back down over an ultimatum set by the army for President Morsi. Morsi has rejected stepping down, warning his removal would spark bloodshed across the country. Morsi’s speech last night provoked clashes between protestors and Morsi-supporters who have taken to the streets of Cairo since the weekend. The situation there remains fluid, with investors worried that we could see a repeat of the crisis in the country back in 2011 which saw the removal of Hosni Mubarak.
Overnight in Asia, China’s poor official non-manufacturing PMIs shook up investors, overshadowing the HSBC China services PMI which was a touch better. Market participants viewed the data as another signal that China’s economy is facing a slowdown which could last much longer than previously expected; this sparked the Australian central bank to signal that it could continue cutting interest rates as long as the country’s mining industry remains under pressure owing to the slowdown in China — the Aussie dollar fell sharply on the back of those comments. In the US on Tuesday, strong factory orders and bumper cars sales in the US for some global auto makers was seen as investors as another reason for the Fed to ease its foot off the stimulus pedal.
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