Two Governments Could Fall, but Euro Resilience Continues

The US dollar is mostly lower.  The exception is sterling which was yesterday's outperformer.  Minutes from BOE meeting contained no surprises, but the market awaits the budget.  

Even though European bourses are higher, anxiety levels are running high--not just because of Libya, but also Yemen, Syria, Gaza strip, among the MENA, but also as I noted yesterday, it looks likely that the Canadian government and the Portuguese government will fall.  Meanwhile, Finland, ahead of next month's election, is balking at increasing funding for EFSF, while Germany is not happy with the funding of the ESM.   

Irish 2-year (generic) note is pushing further above 10%.   It seems to me clear that Ireland will need more assistance to recapitalize the banks.  S&P is saying in stress test, European banks may need $355 bln of capital.    Although European bourses are mostly higher, in the Dow Jones Stoxx 600, which is up now around 0.4% has one sector that is off on the day and that is financials. 

Meanwhile in Japan, it is not clear that all the nuclear plants are under control and some water in Tokyo is more radioactive.   Current estimates suggest the cost of clean up and reconstruction will cost JPY15-25 trillion ($185-$310 bln).    I continue to play down the risk of another round of intervention on the yen as 3-month implied volatility continues to come off.  Today it is dipping below 11%, the lowest since March 14.  Before intervention it was near 17%.  Support for the dollar is seen in the JPY80.60-70 area. 

In Canada, the government unveiled its budget yesterday.  Few surprises in the details, the key point is that all three opposition parties quickly indicated they could not support it.   In Canada, the budget is a confidence vote.  This all comes ahead of today's debate on the censure of the government proposed by the Speaker of the House of Commons.  A formal vote of confidence is expected Friday.  Canadian dollar is fairly resilient, but inclined to see it under perform, if not against the greenback on the crosses.  Against the dollar watch the C$0.9965 area, where the 100-day moving average comes in. 

Portugal's vote on its budget is not until mid-US afternoon.  A failure to approve the new spending cuts could result in two things.  First the government can call snap elections--(takes minimum of 55 days) or bring in other parties into the government--coalition.