Portugal Boosted the Markets

Published: December 2nd 2010
in Economics » World

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Good news from Portugal?


The Government of Portugal issued bonds to the public. The bonds are for a period of one year and they bear an average interest of 5.281 per cent. The interest rates are higher by 0.4 per cent than the previous Portuguese bonds issued in November and they reflect a higher financial risk in the western part of the Iberian Peninsula.


There are many good indicators about the Portuguese move:


1. The demand for the bonds was two and a half times higher than the supply in the market. A high demand reflects high confidence in the country's ability to pay its debts in time.


2. Cash in the Portuguese pockets will postpone the intervention of the EU and the IMF.


The bad things are:


1. 500 million Euros are like a small stone thrown into a deep wide black well. It may help in the very short term, but until the Portuguese government cuts its expenses dramatically, it is only buying time.


2. The yield on those bonds is very high when states are involved. Some investors see 5.281 per cent as a very high risk and look at any acquisition of those bonds as a speculation.


3. S&P announced that it may downgrade the Portuguese credit ranking if the enormous government deficit will not be reduced.


Markets react emotionally


The good news from Portugal and the good news from America boosted the markets.


As an experienced economist I can only say that if in one day markets drop by 2 per cent and they surge by over 2 per cent in the next day, there is nothing rational in the investors' behavior but only pure emotions and speculations.


Many day traders make high profits in these days, and others lose their pants.


A brief at the markets


The closure in Asia was "Green" all over. The two major Asian markets, Nikkei 225 and Shanghai SE, surged by 0.5 and 0.1 per cent respectively.


Tel-Aviv surged by 0.7 per cent amid the news from Portugal and the positive sentiment in the American labor market.


TSX sectors at focus


The health care, energy, metal & mining sector push the TSX high above the 13,080 points. The TSX Venture surges by 0.12 per cent only.


The financial sector is pushing high as well. We previously wrote in Shalom Life that the sector is stuck around 180 points and that there are positive indicators that it will surge higher. As we speak the sector is pushing higher to 183 points on Bay-Street 


This article does not recommend investing in the capital market

Related articles: (Portugal, EU)
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