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

    Vietnam Mulls Tough Measures for ‘Misbehaving’ Chinese Tourists

    Move comes after footage surfaced online of Chinese travelers harassing a banana hawker in Da Nang

    Pakistan Social Media Star's Honor Killing Fuels Debate

    Qandeel Baloch's murder puts spotlight on deadly tradition and other mistreatment of women

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Wall Already Runs Along Parts of US-Mexico Borderi
    X
    July 22, 2016 12:30 AM
    The Republican Party’s presidential nominee, Donald Trump, gained the support of many voters by saying he would build a wall to keep undocumented immigrants and drugs from coming across the border from Mexico. Critics have called his idea impractical and offensive to Mexico, while supporters say such a bold approach is needed to control the border. VOA’s Greg Flakus has more from the border town of Nogales, Arizona.
    Video

    Video Wall Already Runs Along Parts of US-Mexico Border

    The Republican Party’s presidential nominee, Donald Trump, gained the support of many voters by saying he would build a wall to keep undocumented immigrants and drugs from coming across the border from Mexico. Critics have called his idea impractical and offensive to Mexico, while supporters say such a bold approach is needed to control the border. VOA’s Greg Flakus has more from the border town of Nogales, Arizona.
    Video

    Video New HIV Tests Emphasize Rapid Results

    As the global fight against AIDS intensifies, activists have placed increasing importance on getting people to know their HIV status. Some companies are developing new HIV testing methods designed to be quick, easy and accurate. Thuso Khumalo looks at the latest methods, presented at the International AIDS conference in Durban, South Africa.
    Video

    Video African Youth with HIV Urge More Support

    HIV, the virus that causes AIDS, is the top killer of teens in sub-Saharan Africa. But many youths say their experience with the virus is unique and needs to be addressed differently than the adult epidemic. VOA South African Correspondent Anita Powell reports.
    Video

    Video Poor Residents in Cleveland Not Feeling High Hopes of Republican Convention

    With the Republican Party's National Convention underway in Cleveland, Ohio, delegates and visitors are gathered in the host city's downtown - waiting to hear from the party's presidential candidate, Donald Trump. But a few kilometers from the convention's venue, Cleveland's poorest residents are not convinced Trump or his policies will make a difference in their lives. VOA's Ramon Taylor spoke with some of these residents as well as some of the Republican delegates and filed this report.
    Video

    Video Pop-Up Art Comes to Your Living Room, Backyard and Elsewhere

    Around the world, independent artists and musicians wrestle with a common problem: where to exhibit or perform? Traditional spaces such as museums and galleries are reserved for bigger names, and renting a space is not feasible for many. Enter ArtsUp, which connects artists with venue owners. Whether it’s a living room, restaurant, office or even a boat, pop-up events are bringing music and art to unexpected places. Tina Trinh has more.
    Video

    Video With Yosemite as Backdrop, Obama Praises National Parks

    Last month, President Barack Obama and his family visited some of the most beautiful national parks in the U.S. Using the majestic backdrop of a towering waterfall in California's Yosemite National Park, Obama praised the national park system which celebrates its 100th anniversary this year. He talked about the importance of America’s “national treasures” and the need to protect them from climate change and other threats. VOA’s Julie Taboh reports.
    Video

    Video Counter-Islamic State Coalition Plots Next Steps

    As momentum shifts against Islamic State in Iraq, discussions are taking place about the next steps for driving the terrorist group from its final strongholds. Secretary of State John Kerry is hosting a counter-IS meeting at the State Department, a day after defense ministers from more than 30 countries reviewed and agreed upon a course of action. VOA Pentagon correspondent Carla Babb reports.
    Video

    Video Russia's Participation at Brazil Olympic Games Still In Question

    The International Olympic Committee has delayed a decision on whether to ban all Russian teams from competing in next month's Olympic Games in Brazil over allegations of an elaborate doping scheme. The World Anti-Doping Agency recently released an independent report alleging widespread doping by Russian athletes at the 2014 Winter Olympics in Sochi. So far, only Russian track and field athletes have been barred from the Summer Games in Brazil. VOA's Zlatica Hoke has more.
    Video

    Video Scotland’s Booming Whisky Industry Fears Brexit Hangover

    After Britain’s vote to leave the European Union, Scotland’s government wants to break away from the United Kingdom – fearing the nation’s exports are at risk. Among the biggest of these is whisky. Henry Ridgwell reports on a time of turmoil for those involved in the ancient art of distilling Scotland’s most famous product.
    Video

    Video Millennials Could Determine Who Wins Race to White House

    With only four months to go until Americans elect a new president, one group of voters is getting a lot more attention these days: those ages 18 to 35, a generation known as millennials. It’s a demographic that some analysts say could have the power to decide the 2016 election. But a lot depends on whether they actually turn out to vote. VOA’s Alexa Lamanna reports.
    Video

    Video Number of Syrian Refugees Arriving in US Jumps

    The United States is committed to resettling 85,000 refugees from around the world by October. Of that number, 10,000 will come from Syria and already some 4,000 Syrian refugees have arrived in the United States, many of them settling in the state of Illinois. As VOA’s Kane Farabaugh reports from Chicago, their arrival is not the end of a difficult journey to find peace and stability.
    Video

    Video Rio’s Trams Await Olympic Tourists

    Over the past century, many cities around the world replaced electric trams, prone to breakdowns and backups, with faster and more spacious buses. But for some reason restored antique trams are a huge tourist attraction. So it’s no wonder the authorities in Rio de Janeiro are busy restoring their city’s old tram line ahead of the Summer Olympic Games. VOA’ George Putic reports.

    Special Report

    Adrift The Invisible African Diaspora