News / Europe

Cyprus Bailout Lifts Shares, Euro, Oil

x
Reuters
European shares, the euro and oil rose, while safe-haven German government bonds and gold fell on Monday, after Cyprus agreed a bailout to save its banking system and keep it in the eurozone.

In the early hours of Monday morning, Cypriot policy-makers reached a deal with the European Union, the European Central Bank and the International Monetary Fund to shut down its second largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians, in return for 10 billion euro ($13 billion).

Without the agreement, the ECB said it would have cut off emergency funds to the banks, a move that would have triggered a meltdown of Cyprus's banking system and potentially pushed the country out of the euro currency bloc.

Investors breathed a sigh of relief that although the move to seize individuals' savings had introduced a new dimension to the euro zone crisis, the problems had not been allowed to escalate further.

Euro zone banking shares rallied as much as 2.4 percent at one point to lead a rally on global stock markets that reached as far as Australia.

By 1115 GMT Europe's top shares were up just under 1 percent and had recouped most of last week's losses that were due to concerns Cyprus's problems could affect other struggling euro members.

In the region's crisis-sensitive bond markets, the price of German 10-year Bunds, which moves down as yields go up, also fell as the deal brought relief to riskier assets.

"No one really wants to be seen as dropping a country out of the euro zone. That's the signal from this deal," said Elwin de Groot, senior market economist at Rabobank.

Ten-year Spanish government bond yields fell 4.1 basis points to 4.83 percent and the Italian equivalent eased 5.3 bps to 4.47 percent, while gold a traditional safe-haven similar to German Bunds, dropped to a 1-week low of $1,602 an ounce.

Dangerous precedent

The Cyprus deal, however, was unlike previous peripheral euro zone country bailouts, which have protected bank deposits.

The worry now for investors is that the decision to hit savings will see individuals in other debt-strained countries take the precautionary step of pulling money out of their own banks, starving them of already scarce funding.

The euro has largely held its ground during the turmoil in Cyprus. It bounced back above $1.30 following the deal, although the momentum was waning as midday approached in Europe.

"A deal to avoid default was expected. But this sets a dangerous precedent for the euro zone,'' said Peter Kinsella, currency strategist at Commerzbank, who expects the euro to weaken against the dollar.

"It is very worrying that expropriation of private sector capital is taking place. It increases the risk of a bank run and when it next happens it is unlikely that ECB policies of [providing] back stop will work then," he said.

Some equity market traders also said they expected risk premiums, which had been falling before the situation in Cyprus flared up, to rise again.

"I am wondering whether this slightly more moderate response by the market is a reflection of the fact the trust [in euro zone policy makers] is now gone," said Justin Haque, a broker at Hobart Capital Markets, though he expected equity markets to keep rising into the extended Easter bank holiday break.

"This week is a short week and the end of the quarter, so there is going to be a massive amount of window dressing," he said.

Relief evident

The immediate reaction from most markets, however, was relief that the euro zone had managed to douse the flames of the latest fire to threaten the region's financial system.

Wall Street was expected to follow Europe and open higher having been little changed last week. By 1115 GMT futures for the S&P 500, Dow Jones and Nasdaq 100 were up 0.3, 0.4, 0.6 percent respectively.

In the currency market, the dollar, was 0.5 percent lower against a basket of major currencies, while the yen , which tends to rise in times of financial market stress, retreated broadly as the worries over Cyprus eased.

Market expectations that the Bank of Japan will unveil aggressive monetary stimulus at its next policy meeting on April 3-4, the first under new BOJ Governor Haruhiko Kuroda, are also expected to support the dollar against the yen in the near term.

Oil also joined in the rally in risk assets. Brent crude rose 70 cents to above $108 as hopes that the avoidance of more severe outcome in Cyprus could brighten the outlook for a revival in demand.

"This is certainly very good for risk appetite overall and that's going to have a positive impact across oil markets, so we should see some positive sentiment reverberate through energy markets overall, for at least the next 24 to 48 hours,'' said Ben le Brun, an analyst at OptionsXpress in Sydney.

You May Like

Video Iran Nuclear Deal Becomes US Campaign Issue

Voters in three crucial battleground states - Florida, Ohio and Pennsylvania - overwhelmingly oppose nuclear deal with Iran More

Al-Qaida's Syria Affiliate Reemerges

Jabhat al-Nusra has rebounded, increasingly casting itself as a critical player in battle for Syria’s future More

Lessons Learned From Katrina, 10 Years Later

FEMA chief Craig Fugate says key changes include better preparation, improved coordination among state, federal assistance agencies More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Colombians Flee Venezuela as Border Crisis Escalatesi
X
August 27, 2015 2:08 AM
Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Is China's Economic Data Accurate?

Some investors say China's wild stock market gyrations have been made worse by worries about the reliability of that nation's economic data. And some critics say the reports can mislead investors by painting an unrealistically-strong picture of the economy. A key China scholar says Beijing is not fudging ((manipulating)) the numbers, but that the economy is evolving quickly from smoke-stack industries to services, and the ways of tracking new economic activity are falling behind the change. V
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Shipping Containers Provide Experimental Housing

Housing prices around the San Francisco Bay area are out of reach for many people, so some young entrepreneurs, artists and tech industry workers are creating their own houses using converted shipping containers. But as VOA's Mike O’Sullivan reports from Oakland, the effort requires ingenuity and dealing with restrictive local laws.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video Technique May Eliminate Drill-and-Fill Dental Care

Many people dread visiting dentists because they're afraid of drills. Now, however, a technology developed by a British firm promises to eliminate the need for mechanical cleaning of dental cavities by speeding a natural process of tooth repair. VOA’s George Putic reports.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.
Video

Video French Experiment in Integrating Roma Under Threat

Plans to destroy France’s oldest slum have sparked an outcry on the part of its Roma residents. As Lisa Bryant reports from the Paris suburb of La Courneuve, rights groups argue the community is a fledgling experiment on integrating Roma who are often outcasts in many parts of Europe.
Video

Video Kenyans Turn to Agriculture for Business

Each year Kenyan universities continue to churn out graduates for the job market despite the already existing high rate of unemployment among youth in the country. Some of these young men and women have realized that agriculture can be as rewarding as any other business or job, and they are resorting to agribusiness in large numbers as a way of tackling unemployment. Rael Ombuor reports for VOA.
Video

Video First Women Graduate Elite Army Ranger School

Two women are making history for the U.S. Army by proving they are among the toughest of the tough. VOA's Carla Babb reports from Fort Benning, Georgia as 94 men and those two women rise as graduates of the difficult Ranger school.

VOA Blogs