Cyprus Keeps Rocking and Roiling World Markets
US and European markets tried to stabilize today after Monday’s big shakedown but continuing and in some ways worsening uncertainty over the Cyprus bailout kept the pressure on. Indices slumped into their respective closes which could cast a cloud over Asia Pacific trading.
Rumors have been flowing fast and furious through the trading session, including reports that Cyprus’s finance minister may or may not have tried to resign and rumours of flights (of fancy) supposedly carrying cash to the country. What is fact is that the country’s Parliament voted down the use of the proposed tax on bank deposits as part of the bailout. This sends policy makers back to the drawing board and leaves everyone wondering how long the country’s banks may remain closed? The EU, meanwhile, suggested that it will continue to provide liquidity to the country within existing frameworks, but flatly, this bailout has been so badly mishandled that the damage to confidence has already been done.
Another wild card in all of this is Russia. It was supposed to play a role in the bailout, and still could if it isn’t too ticked off about all of these shenanigans. Russia had previously loaned money to Cyprus to keep it afloat. On Thursday, EU President Barroso is expected to travel to Moscow to meet with Prime Minister Medvedev and possibly also President Putin. Oh to be a fly on the wall at those meetings considering that Russians are on the hook for a big chunk of the Cyprus bailout tax.
In addition to stocks, cyclical commodities such as crude oil and copper had the rug ripped out from under them with growing political uncertainty surrounding Europe suggesting that its economy and resource demand could remain impacted for some time to come.
On the other hand, growing fears of financial instability and talk of runs on banks has been driving capital back into gold, which has accelerated again as the trading day has progressed. Silver has been trailing behind to this point and could have room to catch up. Platinum has been trading more like an industrial metal today, falling on concern about what this all may mean for auto demand.
To no surprise, EUR has been sinking like a stone, dragging continental currencies like NOK, SED and the pegged CHF down with it. DKK has also been dropping after Denmark cut its GDP growth forecast. Resource currencies like CAD, AUD and NZD have been knocked back on their heels a bit by the surging defensive havens USD and JPY.
To this point, Japan has been going its own way with traders there more focused on this week’s change of power at the Bank of Japan. With all of the action going on around the world, Japanese markets could also be active this week should events catch up to them.
Highlights of overnight announcements include:
UK consumer prices 2.8% in line vs previous 2.7%
UK retail prices 3.2% vs street 3.3%
UK producer input prices 2.5% vs street 0.8% vs previous 1.8%
UK producer output prices 2.3% vs street 1.8% vs previous 2.0%
Germany ZEW econ sentiment 48.5 vs street 48.1
Germany ZEW current situation 13.6 vs street 6.0
Italy industrial output (3.6%) vs street (5.6%) and previous 7.4%
US housing starts 917K vs street 915K vs previous 890K
US building permits 946K vs street 925K vs previous 904K
Upcoming significant announcements include:
9:30 am AEDT Australia leading index previous 0.2%
7:00 am GMT Germany producer prices street 1.5%
9:30 am GMT Bank of England minutes
9:30 am GMT UK monthly jobless claims street (5K) vs previous (12K)
9:30 am GMT UK unemployment rate street 7.8%
1:30 pm GMT UK budget
2:00 pm ET US interest rate decision
2:00 pm ET FOMC economic projections
2:30 pm ET FOMC statement and press conference