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 Protests Continue in Ferguson, Spread to Other US Cities

Missouri officials say deployment of more than 2,000 National Guard soldiers helps curb second night of rampant arson and looting in Midwestern town More

Video Ebola, Crackdown on Illegals Hit Business in Guangzhou

Chinese city has largest community of Africans in Asia More

Video Legendary Lebanese Actress, Singer Sabah Dies at 87

Music and film diva, affectionately called 'Sabbouha' by millions of her fans, performed at Carnegie Hall in New York, Royal Albert Hall in London, Olympia in Paris, Sydney Opera House in Sydney More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Aung San Suu Kyi: Myanmar Opposition to Keep Pushing for Constitutional Changei
X
November 24, 2014 10:09 PM
Myanmar opposition leader Aung San Suu Kyi says she and her supporters will continue pushing to amend a constitutional clause that bars her from running for president next year. VOA's Than Lwin Htun reports from the capital Naypyitaw in this report narrated by Colin Lovett.
Video

Video Aung San Suu Kyi: Myanmar Opposition to Keep Pushing for Constitutional Change

Myanmar opposition leader Aung San Suu Kyi says she and her supporters will continue pushing to amend a constitutional clause that bars her from running for president next year. VOA's Than Lwin Htun reports from the capital Naypyitaw in this report narrated by Colin Lovett.
Video

Video Mali Attempts to Shut Down Ebola Transmission Chain

Senegal and Nigeria were able to stop small Ebola outbreaks by closely monitoring those who had contact with the sick person and quickly isolating anyone with symptoms. Mali is now scrambling to do the same. VOA’s Anne Look reports from Mali on what the country is doing to shut down the chain of transmission.
Video

Video Ukraine Marks Anniversary of Deadly 1930s Famine

During a commemoration for millions who died of starvation in Ukraine in the early 1930s, President Petro Poroshenko lashed out at Soviet-era totalitarianism for causing the deaths and accused today’s Russian-backed rebels in the east of using similar tactics. VOA’s Daniel Shearf reports from Kyiv.
Video

Video Hong Kong Protests at a Crossroads

New public opinion polls in Hong Kong indicate declining support for pro-democracy demonstrations after weeks of street protests. VOA’s Bill Ide in Guangzhou and Pros Laput in Hong Kong spoke with protesters and observers about whether demonstrators have been too aggressive in pushing for change.
Video

Video US Immigration Relief Imminent for Mixed-Status Families

Tens of thousands of undocumented immigrants in the Washington, D.C., area may benefit from a controversial presidential order announced this week. It's not a path to citizenship, as some activists hoped. But it will allow more immigrants who arrived as children or who have citizen children, to avoid deportation and work legally. VOA's Victoria Macchi talks with one young man who benefited from an earlier presidential order, and whose parents may now benefit after years of living in fear.
Video

Video New Skateboard Defies Gravity

A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video Falling Gas Prices Impact US Oil Extraction

With the price of oil now less than $80 a barrel, motorists throughout the United States are benefiting from gas prices below $3 a gallon. But as VOA’s Kane Farabaugh reports, the decreasing price of petroleum has a downside for the hydraulic fracturing industry in the United States.
Video

Video Tensions Build on Korean Peninsula Amid Military Drills

It has been another tense week on the Korean peninsula as Pyongyang threatened to again test nuclear weapons while the U.S. and South Korean forces held joint military exercises in a show of force. VOA’s Brian Padden reports from the Kunsan Air Base in South Korea.
Video

Video Mama Sarah Obama Honored at UN Women’s Entrepreneurship Day

President Barack Obama's step-grandmother is in the United States to raise money to build a $12 million school and hospital center in Kogelo, Kenya, the birthplace of the president's father, Barack Obama, Sr. She was honored for her decades of work to aid poor Kenyans at a Women's Entrepreneurship Day at the United Nations.
Video

Video Ebola Economic Toll Stirs W. Africa Food Security Concerns

The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Chaos, Abuse Defy Solution in Libya

The political and security crisis in Libya is deepening, with competing governments and, according to Amnesty International, widespread human rights violations committed with impunity. VOA’s Al Pessin reports from London.
Video

Video US Hosts Record 866,000 Foreign Students

Close to 900,000 international students are studying at American universities and colleges, more than ever before. About half of them come from Asia, mostly China. The United States hosts more foreign students than any other country in the world, and its foreign student population is steadily growing. Zlatica Hoke reports.

All About America

AppleAndroid