7/28/2019 Cyprus Deal Shock Sends Shares Tumbling, Gold Up
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Cyprus deal shock sends shares tumbling, gold upReuters 1 hour
43 minutes ago
By Marc Jones
LONDON (Reuters) - The surprise decision by euro zone leaders to
part-fund a bailout of Cyprus by taxing bank depositssent
shockwaves through financial markets on Monday, with shares and the
bonds of struggling euro zone governments
tumbling.
The bloc struck a deal on Saturday to hand Cyprus rescue loans
worth 10 billion euros ($13 billion), but defied warnings -
including from the European Central Bank - and imposed a levy
that would see those with cash in the island's banks lose
between 6.75 and 9.9 percent of their money.
Parliament in Cyprus put off a vote on the measure - which has
shaken depositors' confidence in banks across the
continent - until Tuesday, however, and with public anger at the
deal widespread the government said it was already
looking to ease the pain for small savers.
Without the rescue, Cyprus would have be unable to avoid a
default. That would have undermined the promise thatGreece's debt
writedown last year was a one-off, but the unprecedented move to
hit depositors adds a radical new
dimension to the crisis across the euro zone.
The initial response of investors was unambiguous. Shares
lurched lower, the euro fell to a new three-month low, while
safe-haven assets such as gold and German government bonds
jumped.
The cost of insuring the debt of even high-quality European
banks against default also rose sharply with analysts citing
fears the decision could spark contagion across peripheral
regions with the potential for widespread outflows of deposits.
"If I were a saver, certainly in Spain or maybe Italy, I think
I'd be looking askance at these measures and think this could
yet happen to me," Peter Dixon, global financial economist at
Commerzbank said.
The European Markit iTraxx senior financials index, which tracks
the most important European bank credit default swap
(CDS) rates, widened by 17 basis points.
Some credit default swaps in Spanish, Italian and Portuguese
banks widened more sharply with the five-year CDS for
Spain's Santander 30 basis points higher, while for Italy's
UniCredit it was 23.5 basis points wider.
However, some in the markets were drawing support from a view
that the safety measures put in place at the European
Central Bank should contain the fallout.
"Clearly this is a negative development for European assets but
in the terms of contagion we think it is quite limited," said
Guillermo Felices, head euro asset allocation at Barclays in
London.
"There are tools - such as the ECB's OMT (bond buying program)
and the option of more 3-year LTROs (ECB loans to
banks) that can provide liquidity if needed - that the market
will feel comfortable about when assessing the longer-term
implications."
Three of the world's biggest central banks are also expected to
signal their fresh commitment to loose monetary policies
this week.
The Bank of Japan welcomes a new governor on Wednesday who is
likely to begin pumping huge amounts of yen into the
recession-hit economy. On the same day the Bank of England may
get a new pro-growth mandate in the British
government's annual budget, while the Federal Reserve is
expected to reaffirm its commitment to the current aggressive
U.S. bond-buying program.
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Equity markets were underscoring the more immediate worries,
however, that the Cyprus deal could see savers and firms
in other highly indebted countries like Italy and Spain rush to
pull money out of their own banks.
By 1115 GMT the pan-European FTSEurofirst 300 (.FTEU3) had
clawed back around half of its initial losses but was still
down 0.8 percent in its worst morning since last month's
inconclusive Italian election.
London's FTSE 100 (.FTSE), Frankfurt's DAX (.GDAXI) and Paris's
CAC-40 (.FCHI) were down 0.8, 1 and 1.4 percent
respectively, leaving MSCI's global share index down 0.85
percent.
CENTRAL BANK SUPPORT
In the currency market, the euro staged a slight recovery after
having dropped as low as $1.2882 in the Asian trade, to
session be up 0.1 percent on the day $1.2950.
The dollar (.DXY) itself, which investors often head for when
tensions in Europe rise, gained 0.45 percent.
"Euro zone politicians will be at pains today to manage down the
danger of contagion to other markets. The euro will find
a little bit of support from that but markets will remain
jittery," said Jane Foley, senior currency strategist at
Rabobank.
Italian and Spanish bond yields both jumped sharply as the two
countries remain at the centre of concern in the euro zone
due to the size of their economies which some economists warn
would be too big to rescue.
If savers and firms did pull their money en masse from already
strained banks it could tip the region back into full-blown
crisis, although the ECB's backstop measures are designed to
prevent such problems.
The widespread anxiety drove up German government bonds, the
traditional favorite of risk-adverse European investors,
and indiscriminately pushed up the cost of insuring against a
sovereign default in the euro zone's southern rim.
German Bund futures were up 49 basis points at 144.09 by
late-morning in Europe, while gold, another safe-haven asset,
rising to a 2-1/2-week high of $1,608.30 an ounce before
settling at $1,601.60, up 0.6 percent. (GOL/)
U.S. crude and Brent oil both tumbled, with Brent futures $1.70
a barrel lower at $108.12 before recovering a little to
trade around $108.20 by 1030 GMT. U.S. oil declined $1.10 to
$92.35. (O/R)
(Additional reporting by Richard Hubbard and Nia Williams.
Editing by Peter Graff and Alastair Macdonald)
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us deal shock sends shares tumbling, gold up - Yahoo! Finance
http://finance.yahoo.com/news/yen-firms-asia-shares-fall-001926
3/18/2013
