Shockwaves from last weekend’s Cyprus bailout deal reverberated through global markets overnight sending European and US markets sharply lower in early trading. Toward their respective closes, indices were able to claw back some lost territory. This suggests that Asia Pacific indices could start to stabilize a bit initially after yesterday’s big selloff, but ongoing uncertainty could keep trading choppy through the day. The main sticking point with the street (and make no mistake, it’s a big one) is the taxation of bank deposits. Although the terms may be rearranged in coming days, it marks a major departure from previous ways of dealing with the debt crisis. Up to now the troika had provided loans and private lenders too haircuts. This deal shifts some of the burden on to depositors which dramatically increases the risks in the banking system. After all, if depositors in Cyprus are forced to pay up, Italians and Spaniards are likely wondering if they are next on the list to have their savings confiscated? The whole point of bailouts was to stabilize banks and shore up confidence in the financial system. Taxing deposits undermines faith in the financial system and could spark runs on banks that bailouts are supposed to avoid. The deal has yet to be ratified by the Cypriot parliament and banks were shuttered in the country on Monday. The key question today is whether today will bring a vote and a reopening of banks, or more delays? Also if the banks do open, we may see a run on deposits which could put Cypriot banks under even more pressure. In recent months, capital had steadily been moving back into Europe from the havens it had been parked in recent years. The Cypriot deal has sparked another round of capital outflows from Europe toward relatively more stable shores. This has sparked a rally in gold which broke out from a 5 month downtrend against EUR today, and also capital moves into resource currencies like AUD, NZD and CAD, plus USD and even GBP to some extent. We could see some action in Australia today on the release of the RBA meeting minutes. The subsequent spectacular Australian employment appears to have shifted speculation on interest rate trends to neutral from easing. Because of this, the minutes may not carry as much weight as usual given all that has happened since. Economic News Highlights of overnight announcements include: US NAHB housing market index 44 vs street 47 Upcoming significant announcements include: 11:30 am AEDT Australia RBA meeting minutes 1:30 pm AEDT India interest rate decision street 25 bps cut to 7.50% 9:30 am GMT UK consumer prices street 2.8% vs previous 2.7% 9:30 am GMT UK retail prices street 3.3% unchanged 9:30 am GMT UK producer input prices street 0.8% vs previous 1.8% 9:30 am GMT UK producer output prices street 1.8% vs previous 2.0% 10:00 am GMT Germany ZEW econ sentiment street 48.1 10:00 am GMT Germany ZEW current situation street 6.0 TBA Cyprus vote on bailout package 8:30 am EDT US housing starts street 915K vs previous 890K 8:30 am EDT US building permits street 925K vs previous 904K