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TradeTheNews.com EU Market Update: New Cyprus bailout provides relief rally for now; Italy continues to try to put together a working govt

TradeTheNews.com EU Market Update: New Cyprus bailout provides relief rally for now; Italy continues to try to put together a working govt
Mon, 25 Mar 2013 6:17 AM EST

***Notes/Observations***
- Eurogroup and Cyprus reached renewed agreement on bailout package; The details regarding the implementation of the plan remained sketchy
- Deposits under 100K would not be affected
- Cyprus Laika to be spilt into good bank and bad bank (Bank of Cyprus will become the good bank)
- Bank of Cyprus uninsured depositors to participate in an equity swap to meet 9% capital ratio
- Cyprus to have capital controls of limit of 100/day for now
- Unclear when Cyprus banking sector will reopen (**Note was scheduled for Mar 26th)
- Germany officials giddy over renews terms of Cyprus bailout
- Moody's: Cyprus crisis is Credit Negative for all European sovereigns
- Taiwan Feb industrial Production registers first decline in 8 months

***Economic Data***
- (SG) Singapore Feb CPI M/M: 1.0% v 0.4%e; Y/Y: 4.9% v 4.1%e

- (VN) Vietnam Central Bank cuts Refi Rate by 100bps to 8.00%, effective March 26th
- (FI) Finland Feb PPI M/M: 0.6% v 0.2% prior; Y/Y: 0.1% v 0.7% prior
- (DE) Germany Jan Real Construction Orders nsa - 1.2% y/y
- (TW) Taiwan Feb Industrial Production Y/Y: -11.5% v -9.2%e (first decline in 8 months); Commercial Sales Y/Y: -6.0% v -2.3%e
- (CZ) Czech Mar Business Confidence: 2.2 v 2.3 prior; Consumer Confidence : -20.8 v -22.3 prior; Composite: -2.4 v -2.6% prior
- (ES) Spain Feb Producer Prices M/M: 0.2% v 1.1% prior; Y/Y: 2.1% v 2.6% prior
- (EU) ECB: 212M borrowed in overnight loan facility vs. 148M prior; 126.8B parked in deposit facility vs. 132.2B prior
- (TW) Taiwan Feb M2 Money Supply Y/Y: 3.5% v 3.0% prior; M1 Money Supply Y/Y: 5.7% v 4.0% prior
- (IT) Italy Mar Consumer Confidence: 85.2 v 85.5e
- (UK) Feb BBA Loans for House Purchase: 30,5K v 33.5Ke
- (IT) Italy Feb Non-EU Trade Balance: +0.7B v -2.3B prior

Fixed Income:
- (IT) Italy Debt Agency (Tesoro) sold 2.83B vs.3.0B indicated in Zero Coupon 2014 CTZ; Avg yield: 1.746% v 1.682% prior; Bid-to-cover: 1.43x v 1.65x prior


*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***

***Equities***
Indices: FTSE 100 +0.80% at 6.441
, DAX +1.4% at 8,017, CAC-40 +1.7% at 3,833, IBEX-35 +1.3% at 8,434, FTSE MIB +0.50% at 16,119, SMI +0.70% at 7,797, S&P 500 Futures +0.50% at 1,560

- European equity markets are broadly higher, as EU officials reached an agreement related to Cyprus' banking sector. France CAC-40 has outperformed, while the Italian FTSE MIB has lagged. Today's gains have been led by the banking sector, as shares of Credit Agricole have outperformed

- UK movers [Cupid +40% (defended business model, decline sharply on Friday's session), Avocet Mining +18% (financing agreement), Thomas Cook +7% (broker commentary), Aberdeen Asset Management +6% (AUM rose vs Dec level), Kentz Corp +3% (FY profits and sales rose y/y), Schroders +2.5% (acquisition), RBS +2% (broker commentary), Vodafone +2% (speculation that is seeking to exit US market), Rolls-Royce +1% (speculation] related to settlement with UK SFO); CPP -9% (capital raise speculation)]
- France movers [Transgene +6% (collaboration pact with Sanofi), Michelin +1% (cost cut speculation); Remy Cointreau -2% (broker commentary)]
Switzerland movers [Meyer Burger -3.5% (FY profits declined y/y, capital raise)]
- The Netherlands movers [CSM +6% (asset sale)]

Speakers:
- Russia PM Medvedev commented that Russia needed to carefully calculate consequences on Cyprus bailout
and considered Cyprus plan as looting of other people's money
- German Fin Min Schaeuble commented that the initial Cyprus agreement was a fair one for all parties involved and should help to stabilize the country. He added that Cyprus had 'fair chance' to regain lost market confidence. Country's oversized banking sector to be cut and target to be around 3x national output (**Current was 7x). Cyprus banks should be reopened as soon as possible and that talks on this to take place today.
- German CDU lawmaker Michelback noted that he was cautiously relieved at the agreement on Cyprus with a clear line demonstrated by Eurogroup. Cyprus must fulfill conditions to get aid
- German FDP Budget spokesperson Fricke noted that the essentials of Cyprus agreement appeared to be acceptable (neede more details) but it did not raise contribution of Eurogroup. The Agreement protected small depositors
- German CDU Official Barthle stated that Cyprus bailout plan goes a long way to satisfy German coalition. Germany's Parliament needed details to vote on Cyprus plan
- France Foreign Min Fabius noted that the Cyprus agreement was hard but unavoidable as economy was a casino. Russia's reaction to Cyprus bailout might be hard
- Moody's: Outlook for France's banking sector remained negative despite improvements and would continue to face difficult operating conditions this year
- Chair of Cyprus Finance Committee: Believes big depositors in Bank of Cyprus [BOC.GR] to lose 30%
- Spain was said not to be concerned of potential flight of bank deposits from Cyprus issue
- Italy Former PM Berlusconi: Center-left must open coalition with center-right or country must return to elections
- Hungary Economy Minister Varga noted that there was no complete solution for the 1.7M FX debtors and would use existing tools only. New tools to help FX debtors could only be used if reach compromise with lenders. Loans over 90 days due were key for industry and Keeping banking industry operational and increasing lending was important
- Poland Fin Min Rostowski stated that it might delay Euro region entry until it foreseeable can be competitive. He added that Poland to meet criteria by 2015 but that did not necessary mean joining Euro region as it still needed to reform its labor market
- (DE) German States of Bavaria and Hesse file suit related to fiscal equalization system in Germany's Constitutional Court.
- Philippines Planning Secy Balisacan: Q1 GDP seen between 6.0-7.0% on consumption
- India PM Economic Adviser Rangarajan noted that the future RBI rate moves werer dependent on inflation trajectory but believed the central bank had the scope to cut interest rates if core inflation is below 4%
- Kuwait Oil Min Hussein noted that there was a "little bit" of oversupply in oil markets, market is currently imbalanced. Generally satisfied with prices at the current time and currently producing less than 2.9M bpd

Currencies:
- FX Markets in Europe express a relief rally after an agreement was reached with Cyprus to secure a bailout but dealers were uncertain just how long any euphoria would last. The other Euro zone topic was the attempt to form a new government in Italy. This process was underway but looking likely that another election was inevitable .
- Short-covering helped the EUR/USD during Asia but the pair saw its best level erode away during the European morning. Overall the pair remained within recent ranges despite the opo up in risk appetite.
- The GBP/USD was rekatively steady despite the rating-watch-negative warning by Fitch on the UK's AAA sovereign rating.
- China's yuan hit a record high after PBoC set a firmer midpoint in response to hopes that Cyprus will avoid a banking crisis

Political/In the Papers:
- Cyprus President Anastasiades announced that a deal with Troika has been reached. The details regarding the implementation of the plan remained sketchy
- Banking Sector Restructuring: As part of the plan Popular Bank (Laiki Bank) will be wound down into a good and bad bank. The "good" bank (which will include Laiki's deposits) will be consolidated with the Bank of Cyprus. As of Sept, the Bank of Cyprus had about 27.9B in total deposits and assets of about 36B in total assets. Popular Bank had assets of about 30B, about 18B in total customer deposits and about 144M in senior debt.
- Bank Deposits: In order to restructure Laiki Bank, depositors with funds in the bank of over 100K (uninsured) will face losses. According to an EU official, Popular is believed to have about 4.2B in uninsured deposits. Officials have yet to set a specific bail-in level for the depositors at the bank. There has been some speculation that uninsured depositors could participate in some form of a deposit for equity swap agreement. An FT report noted that officials were considering an up to 40% haircut on depositors with more than 100K at the Bank of Cyprus. A 30-40% haircut range was speculated during the prior week. A smaller hit could be faced by large depositors at other Cypriot banks. According to the Eurogroup, the bail-in of depositors does not need to be voted on by Cyprus' parliament, as the plan related to depositor haircuts has not be characterized as a tax.
- Haircuts on Senior Bank Bondholders: According to reports, senior bondholders in Laiki Bank are expected to face significant haircuts. The level of the haircuts has not been specified as of yet. In prior bank bailouts in Ireland and the Netherlands, bank senior bondholders were protected from losses.
- ECB: The ECB is expected to continue to provide emergency liquidity assistance (ELA) to the Bank of Cyprus, as Laiki Bank's 9B in emergency liquidity is expected to be assumed by the Bank of Cyprus.
- Capital Controls: As part of the measures, Cyprus Popular Bank has limited ATM withdrawals to 100/day.

***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
- (IT) Italy Debt Agency (Tesoro) to sell combined 2.0B in 2018 and 2023 I/L BTP Bonds
- 06:30 (DE) Germany to sell 3.0B in 12-Month BuBills
- 07:00 (EU) ECB member Mersch (Luxembourg) speaks in Madrid
- 07:00 (BR) Brazil Mar FGV Consumer Confidence: No est v 116.2 prior; Construction Costs M/M: 0.3%e v 0.8% prior
- 07:00 (BE) Belgium Debt Agency to sell up 2.5-3.5B in 2018, 2023 and 2032 OLO Bonds
- 07:30 (US) Daily Libor Fixing
- 07:30 (BR) Brazil Central Bank Weekly Economists Survey
- 08:30 (US) Feb Chicago Fed National Activity Index: No est v -0.32 prior
- 09:50 (FR) France Debt Agency (AFT) to sell combined 5.5-6.7B in 3-month, 6-month and 12-month bills
- 10:00 (FR) France Fin Min Moscovici with Sweden Fin Min Borg in Stockholm
- 10:00 (MX) Mexico Jan Global Economic Indicator: 2.5%e v 1.4% prior
- 10:30 (US) Mar Dallas Fed Manufacturing. Activity: 3.7e v 2.2 prior
- 10:30 (EU) ECB Calls for Bids in 7-Day Main Refinancing Tender
- 10:30 (EU) ECB announces prior settlements in SMP program to offset bond purchases
- 10:45 (UK) BOE to buy 1.1B in 3-year to 7-Year Gilts
- 11:00 (US) Fed to purchase $1.25-1.75B in Notes
- 11:30 (US) Treasury to sell combined $65B in 3-Month and 6-Month Bills
- 11:45 (CH) SNB's Danthine speech
- 12:00 (UK) Commons Treasury panel hears testimony on UK budget
- 12:15 (US) Fed's Dudley (Voter) at Economics Club in NY
- 13:15 (UK) Fed's Bernanke, BOE's King, IMF's Blanchard speak in London
- (US) Fed's Dudley to Speak at Economic Club of New York

 

 

 

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