Thread: JPMorgan: Portuguese Govt Poised to Collapse

JPMorgan: Portuguese Govt Poised to Collapse

Tuesday, 22 Mar 2011 01:27 PM

Portugal’s government may collapse tomorrow as the country’s parliament votes on budget cuts that have divided lawmakers, JPMorgan economist Nicola Mai said.

Portuguese Prime Minister Jose Socrates has been attempting to find a compromise with the opposition, “but the opposition does not seem to buy into this,â€

Soros: EU to ‘Suffer Something Worse Than Lost Decade’ Over Debt Plan

Tuesday, 22 Mar 2011 08:23 AM

A competitiveness pact agreed by euro zone leaders to draw a line under the region's debt crisis would "set in stone" a two-speed Europe and could threaten the European Union's political cohesion, billionaire investor George Soros said on Tuesday.

"The European Union will suffer something worse than a lost decade," Soros wrote in the Financial Times ahead of an EU summit on Thursday when the measures are expected to be formally adopted.

"It will endure a chronic divergence in which the surplus countries forge ahead and the deficit countries are dragged down by the burden of accumulated debt."

Euro zone leaders agreed earlier this month on a comprehensive series of measures, proposed by Germany and France in February, calling on EU countries to write limits on public debt and budget deficits into national law, review wage indexation and have more flexible labor markets.

"The competitiveness requirements will be imposed on an uneven playing field, putting deficit countries into an untenable position," Soros wrote.

"Even Spain, which entered the euro crisis with a lower debt ratio than Germany, could be dragged down."

Soros said the EFSF, the euro zone's rescue fund, would need to rescue the banking system as well as member states to restructure sovereign debt without leading to a banking crisis.

The risk premium on borrowing costs of countries that stick to the rules must also be removed, Soros said, through the creation of common euro zone bonds.

"The solution to the euro crisis to be put in place at the end of March will set in stone a two-speed Europe. This will generate resentments that will endanger the EU's political cohesion," Soros wrote.

http://www.moneynews.com/StreetTalk/Sor ... /id/390282

Citi Recommends Buying Irish CDS In Advance Of "Nightmare On Kildare Street"

Submitted by Tyler Durden
03/22/2011 18:24 -0400
72 comments

Earlier today, JPMorgan made waves by claiming, some would say rather uncouthly, that Portugal's government is about to keel over and die (even if it is undisputed- after all, on Wall Street no one can hear you speak the truth). Never one to be left wanting, here comes Citi with some charts of "parabolic" moves in the Irish 2 Year bond, and some even scarier claims. As expected any research report that starts with the words: "Oh dear...The picture on Irish interest rate markets is taking a very grim turn" - well, it is clear where it is going from there. In summary, Citi now believes that Ireland is essentially done for, or as Tom Fitzpatrick ever so more diplomatically puts it "things are about to get ugly", and recommends going long CDS since the entire short end of the curve has gone parabolic, now that Europe seems set to watch the island country explode, 2s10s has inverted in the past few days, and overall the Emerald Isle is now a dead man walking in the dumbest game of chicken since the creation of the euro. Too bad neither side is willing to back out, which will ultimately end with the eventual destruction of the eurozone and the euro.

The backdrop per Citi:

Irish bank stress tests are due at th end of this month. The Government is thought to likely have a good idea of the results heading in to the EU summit later this week

Irish bank shares remain under pressure

Increasing talk in press about possible debt “haircutsâ€

UK Misery Index Hits 20 Year High

by Tyler Durden
03/22/2011 09:07 -0400
113 comments

Earlier we briefly noted the surge

in UK February inflation which coupled with the ongoing decline in GDP, and increased deficits indicates that the UK economy is in dire need of reliquification, which alas won't come (or so the rumor goes) precisely courtesy of ongoing money printing. Just confirming this deterioration visually is the UK Misery index (combination of inflation and unemployment), which has just hit a 20 year high.



Courtesy of Reuters

http://www.zerohedge.com/article/uk-mis ... -year-high

Irish-German 2 Year Spread Hits Lifetime High On Rumor Of Missed Irish Coupon Payment

by Tyler Durden
03/22/2011 08:58 -0400
64 comments

The 2 Year Ireland-Bund spread has just hit an all time record wide of 835 bps, following unconfirmed rumors that either Ireland or Allied Irish Bank has missed a coupon payment. Since the latter is backstopped by the former it is rather difficult to see where one ends and the other begins. And confirming that Europe can no longer use MENA or Japan as a smokescreen, Greek 10 year spread to Bunds widens 16 bps to 935 bps. Since pretty much all curves are inverted, we expect Ireland to approach Greek default risk within days. This is especially true since nothing in Europe's fiscal situation has changed and the dire funding requirements for debt rolling and deficit funding, are, well, dire.

http://www.zerohedge.com/article/irish- ... on-payment

UK Stagflation Worsens Materially As Inflation Jumps To Highest Since 2008, Deficit Surges

by Tyler Durden
03/22/2011 07:48 -0400
37 comments

More bad news out of the UK, where CPI inflation surged from an already nosebleed inducing 4% to 4.4% in February coupled with deteriorating budget shortfalls as public borrowing was nearly double the consensus. The inflation number is particularly worrisome as it was the highest since 2008, driven by a surge in clothing price inflation. It seems at least UK retailers have reached their margin breaking point and have no choice but to hike end prices at this point. From Goldman: "CPI inflation rose from 4.0%yoy to 4.4%yoy in February (vs. Cons. and GS: 4.2%). This is the highest rate of inflation since 2008 and was driven by a sharp increase in clothing price inflation (from 1.3%yoy to 2.8%yoy). The public-sector borrowing data were disappointing on the month (£10.3bn vs. Cons: £8.0bn, GS: £4.3bn) but that overshoot relative to consensus expectations was almost entirely offset by (net) downward revisions to previous months' data."

More from Goldman Sachs:

1. The transport component of the CPI was the largest contributor to the rate of year-on-year inflation in February, adding 1.3%pts to headline inflation. Within this, the significant drivers were fuels and lubricants, the prices of which rose by around 16%yoy. The increase in the year-on-year rate of inflation in February, from 4.0% to 4.4%, was driven both by the 'clothing and footwear' and 'housing and household services' components (with gas bills making the largest upward contribution in the latter). Together, these two categories contributed more than half of the 0.4%pt increase in inflation between January and February.

2. The increase in VAT at the start of this year will continue to have a base effect on inflation through the duration of 2011. Combined with a rising contribution from commodity and food prices, we expect CPI inflation to peak in the coming months but to remain close to 4% throughout 2011. Over the medium-term, downward base effects from recent energy price increases kick in only at the tail-end of this year, allowing a decline in headline inflation to around 3% by December. These downward forces are then likely to be amplified by base effects in early 2012 (from the January VAT increase) and extended through the first half of next year. We will send out an updated inflation path later today.

3. There is a high level of disagreement within the MPC as to how much of a danger recent inflation readings pose. While the median voter on the committee remains wary of attaching too much weight to spot inflation, we learned from the February minutes that "of those members not favouring a rise, some thought the case for an increase had grown". This morning's CPI print, and its implication for near-term inflation dynamics, is likely only to add fuel to the fire of this debate.

4. Also released this morning, headline public-sector borrowing (i.e., including financial interventions) overshot consensus expectations by around £2½bn in February. This was almost entirely offset, however, by cumulative revisions to the PSNB over the ten months of this financial year. On the PSNB measure excluding financial interventions, borrowing came in £4½bn higher than expected on the month; the effect of revisions to prior months lowered the cumulative 'PSNB ex.' by £1.3bn. The growth of tax receipts edged lower in February but remains consistent with nominal GDP growth of around 4%yoy (Chart 1).

5. Tomorrow's Budget is unlikely to provide any major surprises, principally because the government has already set out its fiscal plans for the duration of parliament in some detail. Two key things to watch will be the downward revision to the OBR's 2011 growth forecast (previously 2.1%) - a mechanical consequence of the weak Q4 GDP data - and the new deficit forecasts (likely to be revised down for 2010/11 but revised higher for future years, partly as a result of weaker GDP growth in 2011).

http://www.zerohedge.com/article/uk-sta ... cit-surges

One Minute Macro Update - Portuguese Contraction, EMU Letdown

by Tyler Durden
03/22/2011 07:40 -0400
10 comments

Overview: Futures mostly positive this morning, with European stocks rising despite rising concerns over the EMU’s bailout fund.

U.S.: Yesterday saw existing home sales fell to 4.88MM v 5.12MME, weighed down by distressed properties and winter weather issues. More disappointing housing sector figures are expected today with the release of the house price index at -0.2%E MoM v -0.3% prior. The Richmond Fed manufacturing index will be released today at 24E v 25 prior.

Europe: The BOJ announced today that lender’s deposits with the bank will increase 146% to a high of Â¥43.6T today v Â¥17.7T the day before the earthquake as Japan continues to inject large amounts of cash into the financial system to help speed the recovery. Although Portugal plans on significant spending cuts, the growing political divide within the country may not allow the measures to pass. SOVXWE widened out to 171bp on the Portuguese news as well as the relative disappointment in the “new and improvedâ€