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

Sydney Hostage-taker Failed to Manipulate Social Media

Gunman forced captives to use personal Facebook, YouTube accounts to issue his demands; online community helped flag messages, urged others not to share them More

UN Seeks $8.4 Billion to Help War-Hit Syrians

Effort aimed at helping Syrians displaced within their own country and those who've fled to neighboring ones More

Who Are the Pakistani Taliban?

It's an umbrella group of militant organizations whose objective is enforcement of Sharia in Pakistan 'whether through peace or war' More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Putin: Russian Economy to Rebound in 2 Yearsi
X
December 18, 2014 5:13 PM
Russian President Vladimir Putin held his annual end-of-the-year news conference Thursday, tackling questions on the Russian economy, the crisis in Ukraine and Russian relations with the west. VOA's Jeff Custer reports.
Video

Video Putin: Russian Economy to Rebound in 2 Years

Russian President Vladimir Putin held his annual end-of-the-year news conference Thursday, tackling questions on the Russian economy, the crisis in Ukraine and Russian relations with the west. VOA's Jeff Custer reports.
Video

Video Nigerians Fleeing Boko Haram Languish in Camp Near Capital

In its five-year effort to impose Islamic law in northeastern Nigeria, the Boko Haram extremist group has killed thousands of people and forced hundreds of thousands to flee. Some of those who ran for their lives now live in squalor on the edges of the capital, Abuja. Chris Stein reports for VOA.
Video

Video Detained Turkish Journalists Follow Teachings of US-Based Preacher

The Turkish government’s jailing of critical journalists has sparked international condemnation and is being seen as an effort to undermine the followers of an ailing Turkish preacher based in the United States. VOA religion reporter Jerome Socolovsky has more.
Video

Video Will Pakistan School Shooting Galvanize Pakistan Against Extremism?

The attack on a military school in Pakistan’s northwest city of Peshawar left 141 dead, including 132 children. Strong statements of condemnation poured in from across the world. The country announced three days of mourning, and the leadership, both political and military, promised retribution. VOA's Ayesha Tanzeem looks at how likely the Pakistani government is to clamp down on all extremist groups.
Video

Video ‘Anti-Islamization’ Marches Increase Tensions In Germany

Anti-immigrant rallies in Germany have been building in recent weeks, peaking Monday night in the city of Dresden where tens of thousands of people turned out to demonstrate against what they call the ‘Islamization’ of the West. Germany has offered asylum to more Syrian refugees than any other country, and this appears to have set off the protests. Henry Ridgwell reports from London.
Video

Video Aceh Rebuilt Decade After Tsunami, But Scars Remain

On December 26, 2004 there was an earthquake in the Indian Ocean so powerful it caused the Earth’s axis to wobble a few centimeters. Onshore on the island of Sumatra, the resulting tsunami was devastating. A decade later, VOA Correspondent Steve Herman reports from Banda Aceh, Indonesia, where although there is little remaining evidence of the physical devastation, the psychological scars among survivors remain.
Video

Video Refugees Living in Kenya Long for Peace in the Home Countries

Kenya is host to numerous refugees seeking safe haven from conflict. Immigrants from Somalia face challenges in their new lives in Kenya. Ahead of International Migrants Day (December 18) Lenny Ruvaga has more for VOA News from the Kenyan capital.
Video

Video Turkey's Authoritarianism Dismays Western Allies

The Turkish government has been defiant in the face of criticism at home and abroad for its raids targeting opposition media. The European Union on Monday expressed dismay after President Recep Tayyip Erdogan lashed out at Brussels for criticizing his government's action. Turkey's bid to be considered for EU membership has been on hold while critics accuse the NATO ally of increasingly authoritarian rule. Zlatica Hoke reports.

All About America

AppleAndroid