The yield on Portuguese five-year benchmark bonds rose yesterday to almost 10%, but the caretaker Prime Minister Socrates vowed to keep resisting a foreign financial rescue for the debt-laden country. This morning, Moody’s downgraded Portugal’s sovereign bond rating from A3 to Baa1, still under review for a possible downgrade.
Fed Chairman Ben Bernanke said overnight that the increase in US inflation is driven primarily by rising commodity prices globally and is unlikely to persist. In the medium term he added, that inflation, if anything, will be a bit low.
Euro zone finance ministers will meet on Friday in Budapest to discuss Portugal’s options to solve its debt problems under a caretaker government, including whether it is capable of requesting EU financial aid, a source said.
Australia’s central bank held interest rates unchanged at 4.75% this morning, reiterating that the strong local currency, moderate wage growth and intense retail competition would help keep inflation contained for the year ahead.
The United States will hit the legal limit on its ability to borrow no later than May 16, Treasury Secretary Geithner said on Monday, ramping up pressure on Congress to act to avoid a debt default.
Today, the eco calendar contains the euro zone (final) and UK services PMI, the euro zone retail sales and US non-manufacturing ISM. After Bernanke, a whole range of other Fed speakers will take the stage today and the UK and Austria will tap the market. The ECB holds its weekly MRO-tender to replace €100.44B maturing from last week’s MRO.
According to the first estimate, euro zone services PMI improved marginally in March (from 56.8 to 56.9). The final figure is forecasted to confirm this outcome, but we believe that the risks might be on the downside of expectations as the outlook for higher rates might have weakened sentiment. In the UK, services PMI is expected to stabilize at 52.6 in March after a significant decline in the month before. We believe however that a slight increase is not excluded. Euro zone retail sales are expected to increase for the second consecutive month in February, but only marginally. The consensus is looking for an increase by 0.1% M/M, but after the weak German figures, we believe that the risks might be on the downside of expectations. Finally, in the US, the non-manufacturing ISM is forecasted to decline marginally from its 5.5-year peak. In March, the headline figure is expected to drop from 59.7 to 59.5. We have no reasons to distance ourselves from the consensus.