FXStreet (Córdoba) – The current political crisis brought Portugal to the headlines after a collapse of the government. According to analysts from Brown Brothers Harriman developments may weigh further on Portugal asset markets, but do not pose a systemic threat.
Key Quotes:
“There was ostensibly concern that a left coalition would not be stable. However, the subtext was that the left would antagonize the official creditors. There are differences among the left, but there is a joint distaste for the austerity that the creditors demanded in exchange for aid that Coelho accepted. Still, the different agendas promise to erupt, and potentially quickly. Costa wants to unwind some public sector wage cuts, and bolster family income by taxing inheritance of more than 1 mln euros, looking at changing the income tax brackets, and increasing the minimum wage. The Left Bloc wants to to restructure the country’s debt while the Communists want to prepare to exit EMU.”
“Today’s developments are not a surprise. It has been a bit more than a week in the making. Over the past five sessions, Portugal’s 10-year bond yield rose 20 bp, the most in Europe. Portuguese equities have also underperformed, dropping 4.6% over the past five sessions. In comparison, the Dow Jones Stoxx 600 is off about 0.6% over the same period.”
“With the Fed now more widely seen raising rates a fortnight after the ECB eases policy further at the start of next month, the euro remains on the defensive. Recall that during the Greek drama, the euro never revisited the March lows (~$1.0460). In fact, it did not go back below $1.08 until last week. Portuguese developments may weigh further on Portugal asset markets, but the situation seems far from a systemic threat.”
(Market News Provided by FXstreet)