Libyan Rebels Approach Gaddafi Hometown, Portugal Remains in Crisis

The weekend has been heavy in terms of activity, and Monday 28^th is more active than a typical first day of the week would be.

In Portugal, it is expected that the President will meet with party leaders in order to determine the date of the oncoming early elections, which will end the current parliament`s tenure two year before the legal term. The outgoing PM Jose Socrates has been insisting that Portugal does not need a bailout yet, since it remains in possession of enough cash to meet redemptions of Eur 4.5 billion bonds due April 15th. There seems to be some agreement among Portuguese authorities that June redemptions of a similar size pose a different risk, and the next election will probably take place that month in order to face the turmoil with a strong and responsible government in place. Yet, whether it is a good idea to place these two events in such close succession is up for debate, and this is reflected in the market reaction as well, where traders demand a yield of 7.66%, or a spread of 260+ for funding the government`s 10 yr borrowing. Spain seems to have escaped similar treatment for now, perhaps due to the ruling government`s commitment to bring the deficit back to 6% of GDP from 9.2% in 2010.

In Syria, where demonstrations have caused deaths and a massive outpouring of anger in the south of the country, the Assad regime has adopted a very measured approach, no doubt sobered by what is happening to the Colonel in Libya. Promises of widespread reforms are flying in the air, but since similar promises were made in the past too, and never fulfilled, it remains to be seen how credible the latest pledges will seem to the people. Still, the Arab Revolution is a real and serious threat to the survival of these regimes, and as Basshar Assad has proven himself to be a reasonably flexible leader in the past, there is some hope that that bloodshed of the kind seen in Libya or Yemen recently can be averted. From a trader`s point of view, Syria is a tiny country with only a limited economic role in the region, but its pivotal situation and role in the Arab-Israeli conflict make it an important component from a strategical point of view. In Yemen, after yet more clashes and protests, the U.S. ally Ali Abdallah Saleh is reported to have agreed to leave the country, but not immediately. His ruling party has also declared its support for him.

Finally, in Japan, there is worrying evidence that the nuclear crisis is getting deeper and harder to control, as reports of radiation leakage into the sea, and radiativity levels reaching up to 100,000 times the natural norms frighten the Japanese people. Authorities have declared it likely that the resolution of the issues will last for months, and an influential advisor to the PM has suggested that Japan be decentralized in order to avoid similar events when Tokyo is hit by an expected earthquake-tsunami combination sometime in the future.

In consequence of these developments, global stocks showed a mixed performance, while the USDJPY and AUDJPY pairs appreciated, and the Euro fell in reaction to Portugal concerns. Gold and oil were lower. This is probably due to the rapid advance of rebel forces in Libya this weekend, which brought them close to the Colonel`s birthtown, raising hopes that the crisis and the war may reach a conclusion earlier than expected. There is not much that can be said on this matter, since conditions are volatile, and it is difficult to predict what kind of surprises may be awaiting both sides.