The ghost of sovereign debt returned to haunt Portugal and UK last week.
S&P downgraded Portugal two notches to BBB, citing political instability as a result of the resignation of Portuguese Prime Minister Jose Socrates, after his government lost an austerity-budget vote.
The downgrade comes after both Moody’s and Fitch lowered their ratings on the country as well.
Portugal faces the bulk of it refinancing needs within the next several months. Come April, an estimated 4.5 billion Euros will be redeemed, followed by 4.9 billion Euros in June.
Analyst Laurent Fransolet at Barclays Capital estimated in a note last Friday that the country’s current cash position was likely to be about 4.5 to 5 billion Euros, enough to cover the April redemption, though not the one in June.
“Portugal needs to find financing in the coming weeks,” Fransolet wrote, adding that funds could come through issuance, credit lines or a bridge loan. “Portugal is likely to find financing, but it is not in a comfortable position.”
In what seemed to be a contradicting retort, Eurogroup chairman Jean-Claude Juncker said in the recently concluded EU Summit, “I don’t assume that Portugal will be putting in a request for financial assistance. The situation in Portugal is very complicated. But nothing suggests that Portugal will put in a request any time soon.”
With Portugal’s 10-year bond yield advancing 13 basis points last week, it seems that Portugal will have to fork out rates in excess of 7% to roll-over its debt.
Similarly, ratings agency Moody’s issued a warning to British Chancellor George Osborne that Britain could lose its triple-A credit rating because of runaway deficits.
In a bid to rein in its debt, the government announced a shocking US$130 billion (S$164 billion) in spending cuts. The move was so bold that it drew widespread condemnation from the people; sending them to the streets in protest on Saturday.
Top News This Week
China Manufacturing PMI. Friday, 1st April 2011, 9am. I expect numbers to come in at 54.6 (previous numbers were 52.2).
US Non-Farm Payroll. Friday, 1st April 2011, 8.30pm. I expect numbers to come in at 203,000 (previous numbers were 192,000).
Trade Call
Sell GBP/USD at 1.6035
On the hourly chart, GBP/USD has been on a nice downtrend since March 22, falling over 400 pips since touching 1.6400 on March 22.
At the time of this writing, the psychological level of 1.60 has also been breached. We will continue to trade along the downtrend, going short once prices retrace to 1.6035.
A tight stop loss is placed 50 pips above the entry, and we will have 2 profit targets on this trade.
Entry Price = 1.6035
Stop Loss = 1.6085
1st Profit = 1.5985
2nd Profit = 1.5935
Click here to claim your FREE $50,000 demo account
No related posts.