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

Ebola Death Toll Nears 5,000 as Virus Advances

West Africa bears heaviest burden; Mali toddler’s death raises new fears More

Jordan’s Battle With Islamic State Militants Carries Domestic Risks

Despite Western concerns that IS militants are preparing a Jordanian offensive, analysts call the kingdom's solid intel a strong deterrent More

Asian-Americans Assume Office in Record Numbers

Steadily deepening engagement in local politics pays off for politicians like Chinese-American Judy Chu More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Talks to Resume on Winter Gas for Ukrainei
X
Al Pessin
October 25, 2014 4:21 PM
Ukrainian and Russian officials will meet again next week in an effort to settle their dispute over natural gas supplies that threatens to leave Ukraine short of heating fuel for the coming winter. VOA’s Al Pessin reports from London the dispute is complex, and has both economic and geopolitical dimensions.
Video

Video Talks to Resume on Winter Gas for Ukraine

Ukrainian and Russian officials will meet again next week in an effort to settle their dispute over natural gas supplies that threatens to leave Ukraine short of heating fuel for the coming winter. VOA’s Al Pessin reports from London the dispute is complex, and has both economic and geopolitical dimensions.
Video

Video Smugglers Offer Cheap Passage From Turkey to Syria

Smugglers in Turkey offer a relatively cheap passage across the border into Syria. Ankara has stepped up efforts to stem the flow of foreign fighters who want to join Islamic State militants fighting for control of the Syrian border city of Kobani. But porous borders and border guards who can be bribed make illegal border crossings quite easy. Zlatica Hoke has more.
Video

Video Comanche Chief Quanah Parker’s Century-Old House Falling Apart

One of the most fascinating people in U.S. history was Quanah Parker, the last chief of the American Indian tribe, the Comanche. He was the son of a Comanche warrior and a white woman who had been captured by the Indians. Parker was a fierce warrior until 1875 when he led his people to Fort Sill, Oklahoma, and took on a new, peaceful life. As VOA’s Greg Flakus reports from Cache, Oklahoma, Quanah’s image remains strong among his people, but part of his heritage is in danger of disappearing.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video After Decades of Pressure, Luxembourg Drops Bank Secrecy Rules

European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video Kobani Refugees Welcome, Turkey Criticizes, US Airdrop

Residents of Kobani in northern Syria have welcomed the airdrop of weapons, ammunition and medicine to Kurdish militia who are resisting the seizure of their city by Islamic State militants. The Turkish government, however, has criticized the operation. VOA’s Scott Bobb reports from southeastern Turkey, across the border from Kobani.
Video

Video US ‘Death Cafes’ Put Focus on the Finale

In contemporary America, death usually is a topic to be avoided. But the growing “death café” movement encourages people to discuss their fears and desires about their final moments. VOA’s Jerome Socolovsky reports.
Video

Video Ebola Orphanage Opens in Sierra Leone

Sierra Leone's first Ebola orphanage has opened in the Kailahun district. Hundreds of children orphaned since the beginning of the Ebola outbreak face stigma and rejection with nobody to care for them. Adam Bailes reports for VOA about a new interim care center that's aimed at helping the growing number of children affected by Ebola.

All About America

AppleAndroid