Reports » Europe

European stock market, economy and companies update (March 18, 2013)

Contributed by Trade The News

***Notes/Observations***
- Fresh round of turmoil, after the announcement of an unprecedented levy on bank deposits in Cyprus; Banks will seize as much as 9.9% of deposits to help pay for Cyrpus' bailout
- Asian and European stocks were broadly lower after markets reacted with shock to the Cyprus bank tax proposal
- Cyprus received a €10B bailout from the Troika, but with harsh conditions that included a haircut on current bank deposits. The first draft of the deal calls for a 6.75% cut for smaller depositors with a 9.9% tax on accounts over €100K with the tax contributing €5.8B towards the bailout, but the percentages may be revised so that small depositors may an even lower tax while larger depositors pay a higher one. Also as part of the financial aid package Russia agreed to revise the terms of €2.5B loan to Cyprus, extending the maturity from 5 years to 8, and reducing the interest rate below 4.5%. The IMF is also expected to contribute to the bailout. The Cyprus Parliament will vote on the deposit haircut today, the passage of the tax on deposits is far from assured as the parliament is highly fractured.
- Cyprus Govt to introduce new proposal to tax Cyprus banks deposits later today; Deposits below €100k to be levied 3% tax, with deposits of up to €500k at 10%, above €500k at 15%
- ECB's Asmussen: Cyprus can alter bailout program terms as long as total amount of savings (€5.8B) remained the same
- Cyprus might again postpone Parliamentary vote on Bailout agreement until Tuesday, March 19th (**Note: was suppose to occur on Sunday)

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

***Equities***
Indices: FTSE 100 -0.70% at 6,446, DAX -1.1% at 7,955, CAC-40 -1.2% at 3,799, IBEX-35 -1.9% at 8,455, FTSE MIB -2% at 15,729, SMI -0.90% at 7,791, S&P 500 Futures -0.80% at 1,540

- European equity markets are broadly lower, as traders assess the implications of the Cyprus bank deposit levy on Euro Zone banks. However, indices have pared losses, as additional details continue to be released related to the Cyprus proposal. Also, the Cyprus Central Bank said that the ECB has pledged to provide Cyprus with liquidity if the banking levy is approved. As expected, today's weakness has been led by the financial sector. Underperformers among European banks include Barclays, SocGen and Unicredit, while shares of HSBC have outperformed. Resource related companies are broadly lower, tracking the declines in oil and copper prices. In terms of upcoming event risks, Cyprus' parliament is due to debate the bank levy proposal later today, while the Eurogroup may hold a teleconference on the matter. Later during the week, the US FOMC is due to hold its monetary policy meeting (March 19-20th), while the UK's budget statement is expected on Wed March 20th.

- UK movers [Marks & Spencer +7% (higher on renewed takeover speculation); Sage Group -3% (technical weakness), ENRC -2.5% (concerns related to writedown)]
- France movers [STMicroelectronics +1% (options related to ST-Ericsson jv); Vivendi -1.5% (broker commentary)]
- Italy movers [Unicredit -4% (Q4 net loss wider than ests)]

Speakers:
- Cyprus Govt to introduce new proposal to tax Cyprus banks deposits later today. Deposits below €100k to be levied 3% tax, with deposits of up to €500k at 10%, above €500k at 15%. It could also introduce a tax-free threshold on bank deposit levy for smaller deposits under €20K. The Eurogroup to hold teleconference to approve new Cyprus proposal - likely Monday afternoon
- ECB's Asmussen (Germany) commented that it was illusionary to think the EU could fight the debt crisis with more debt and added that there was no such thing as a risk-free bailout for Cyprus. He added that it was in hands of Cyprus Govt to change structure of adjustment program. The country had sufficient liquidity with its banks having access to emergency liquidity. Cyprus could alter bailout program as long as total amount remained the same. Structure of Cyprus bank levy was not an ECB decision but outcome of negotiations. Cyprus systemically relevant for all of EMU but will tale years for Euro to resolve the crisis
- German Govt Advisor Bofinger (wiseman): Cyprus agreement must be revised as it poses threat to entire EMU and amounts to expropriation
- Russia President Putin spokesperson: Cyprus bank deposit tax would be unfair, unprofessional and dangerous
- Russia govt spokesperson commented that Russia had made no decision yet on Cyprus loan extension or investors participation in Cyprus bank recap (**Note: On Friday March 16th Eurogroup President Dijsselbloem stated that Russia agreed to revise terms of prior €2.5B loan to Cyprus, extending the maturity from 5 years to 8, and reducing the interest rate below 4.5%.)
- Russia Deputy Fin Min Shatalov stated that the proposed Cyprus deposit levy would be fair if imposed on interest earned on deposits
- Russia Gas Co. Gazprom [GAZP.RU] offered to restructure Cyprus banks in exchange for natural gas rights
- Cyprus Central Bank: All banks to open tomorrow Tue, March 19th in Cyprus (**Note: Monday is a schedule Green Monday bank holiday but there were rumors that bank holiday could run through Wed Mar 20th)
- Swiss government (SECO) left its forecast for this year unchanged compared to the December projection, but lifted the 2014 forecast from 2.0% predicted previously
- S&P German Chief Hinrichs: Sees explosive social issues in Europe due to high unemployment in Spain, Italy and France; sees no threat to German AAA rating
- Former Italy PM Berlusconi PDL offers Bersani a path to PM if he supports a PDL candidate for President
- Poland Central Bank's Bratkowski stated that he backed a monetary policy pause mode for the next few months and saw May as next period to decide on rates. Stagnating GDP was likely scenario; modest rebound possible
- Poland Deputy Fin Min Cichon commented that Poland was not going to join the currency war but he did not see any clear signals of economic recovery in Poland. Zloty currency (PLN) was quite stable and favorable for exporters. He did caution that its 2013 budget GDP goal was very optimistic
- PBoC's Lui: Yuan convertibility can be completed in 10 years
- Japan Dep Econ Min Nishimura: Expected BOJ to announce some form of easing at its April policy meeting (**Note: next meeting on April 4th)
- South Korea Vice Fin Min Shin: To use 'all means' to stabilize Fx markets in a response to question on 'weak yen environment'
- Saudi Arabia Oil Min Naimi current level of oil prices would not deter economic growth in Asia. He reiterated the view that oil prices were set by market forces and no intention to settle oil transactions in any other currency expect for USD

Currencies:
- Risk aversion sentiment did hit the Asian session as fresh round of turmoil was exhibited after the announcement of an unprecedented levy on bank deposits in Cyprus. As in prior situation the USD and JPY currencies did benefit from the sentiment.
- In early Europe the EUR/USD managed to again hold its 200-day moving avg of 1.2871 and found the ability to recover from 4-months lows. Risk aversion tension appeared to ease after the Cyprus Govt sought to amend the Deposit levy terms on its bailout package ahead of a Parliament vote later today to approve the bailout conditions. The EUR/USD pair was above 1,2960 level as the NY morning approached while EUR/JPY cross was 150 pips off its Asian session lows and edging back towards the 123 handle.
- Peripheral yields moved higher in the session while core Europe moved lower in a classic safe-haven play. The Spanish 10-year gov't yield was at 5.05%, higher by 15bps in early European trading with Italy 10-year testing 4.75%
- The markets will focus on the Cyprus Parliament debate and vote on the bailout program. There does remain a risk the Cyprus parliament would vote against the tax proposal and the govt was looking to amend the bank deposit levy. The situation in Cyprus was the kind of move that Euro-skeptics have been dreaming of.

Political/In the Papers:
-(CY) Cyprus govt said to be in talks with lenders to revise bank tax on deposits below €100K to 3%; Deposits above €100K to 12.5%
-(CY) Cyprus parliament to convene in an emergency session at 1400GMT on Monday to debate ratification of the deal.
-(CY) Cyprus could extend bank holiday to Tue Mar 19th and Wed Mar 20th- financial press; Today is Green Monday bank holiday in Cyprus
-(CY) Cypriots lining up at ATMs to withdraw cash from banks ahead of expected deposit tax next week - NYT; Although banks have placed €400 withdrawal limits at automatic tellers, most ATMs were reportedly out of money by early Saturday evening.
- Portugal and Ireland get more time. The Eurogroup ministers agreed to extend the maturity of EFSF loans to Portugal and Ireland to help ease their effort to return to normalized market financing.
- Italy elected center-left coalition leaders (Bersani's coalition) to the Parliament on Saturday. Laura Boldrini (former spokeswoman in Italy for the U.N. High Commissioner for Refugees) elected to lead the Chamber of Deputies (lower house) Piero Grasso (anti-mafia prosecutor) elected to lead the Senate (upper house)
- (EU) There are concerns in Germany that the ECB banking supervisory plan may violate EU treaties - German Press
-EUR/USD: In Asia opened down over 150pips below $1.2920
-(EU) EU Pres Van Rompuy to step away from politics once his term runs out in 2014 - Dutch media
-(EU) IMF: Risks to stability of European financial system remain elevated, weak European economy will likely drive more loan losses
-(UK) UK Chancellor Osborne expected to release economic measures ahead of Budget release - British press
-(UK) UK Chancellor Osborne says the UK will guarantee British workers' deposits in Cyprus- UK press; Overall British savers hold €2B in deposits in Cyprus
-(CN) China Premier Li Keqiang: Looking to open up the economy more and do away with some govt power to meet 7.5% annual growth through 2020 - financial press
-(JP) JPMorgan: Expecting significant new policy measures at the BoJ policy meeting on Apr 4th
-(US) Latest surveys suggesting Fed may start to slow its bond purchases in Nov 2013, stop buying bonds in May 2014, and start considering raising rates by June 2015 as unemployment falls toward 6.5% - US financial press
- (US) Fed's Stein: Supports easy money policies but concerned about costs

***Looking Ahead***
***All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
- (EU) EU Chairs Technical Nuclear Talks With Iran in Istanbul
- (US) Senate meets on Budget panel
- (NL) Netherlands Debt Agency (DSTA) to sell €4.0B in 3-month and 6-month bills
- (SK) Slovakia Debt Agency (ARDAL) to sell Bills/Bonds
- 07:00 (TR) Turkey to sell 2018 and 2020 bonds
- 07:00 (IS) Israel to sell 2016, 2017, 2018, 2021, 2022 and 2042 Bonds
- 07:30 (BR) Brazil Central Bank Weekly Economists Survey
- 07:30 (US) Daily US Libor Fixing
- 08:30 (CL) Chile Q4 GDP Q/Q: 3.4%e v 1.4% prior; Y/Y: 5.6%e v 5.7% prior; Current Account: -$2.2Be v -4.8B prior; 2012 Annual GDP Growth Rate: No est v 6.0% prior
- 09:00 (PL) Poland Feb Avg Gross Wages M/M: 10.4%e v -10.5% prior; Y/Y: 2.9%e v 0.4% prior
- 09:00 (PL) Poland Feb Employment M/M: -0.2%e v 0.6% prior; Y/Y: -0.9%e v -0.8% prior
- 09:00 (PL) Poland Feb Core Inflation M/M: 0.0%e v 0.0% prior; Y/Y: 1.1%e v 1.4% prior
- 09:30 (CH) Swiss Government Question Time in Parliament
- 09:30 (EU) ECB's Nowotny, CBT's Basci speak at Vienna Conference
- 09:50 (FR) France Debt Agency (AFT) to sell combined €7.6B in 3-month, 6-month and 12-month bills
- 10:00 (CY) Cyprus Parliament meets on bailout agreement
- 10:00 (EU) ECB member Weidmann with German Fin Min Schaeuble hold press conference
- 10:00 (EU) ECB Member Costa (Portugal)
- 10:00 (EU) ECB member Mersch gives closing remarks at ECB-EU conference in Frankfurt
- 10:00 (US) Mar NAHB Housing Market Index: 47e v 46 prior
- 10:00 (RO) Romania to sell up to RON500M in 2020 Bonds
- 10:30 (EU) ECB calls for bids in 7-Day Main Refinancing Tender
- 10:30 (EU) ECB announces weekly settlements in Govt Bond Purchase Program (SMP)
- 10:45 (UK) BOE to buy £1.1B in 3-year to 7-Year Gilts
- 11:00 (US) Fed to purchase U$1.25-1.75N in Notes
- 11:30 (US) Treasury to sell $65B in 3-Month and 6-Month Bills
- 13:00 (DE) ECB's Asmussen holds Speech on Euro Theme: Berlin
- 13:00 (EU) Luxembourg PM Juncker Speaks at Vienna University
- 13:00 (DE) German Chancellor Merkel, France Pres Hollande and EU's Barroso to meet
- 17:00 (CO) Colombia Jan Trade Balance: No est v $677.3M prior; Imports CIF: No est v $4.5B prior
- 20:30 (AU) RBA Mar Policy Meeting Minutes


***Economic Data***
- (EU) ECB: €12M borrowed in overnight loan facility vs. €17M prior; €132.6B parked in deposit facility vs. €117.8B prior
- (HK) Hong Kong Feb Unemployment Rate: 3.4% v 3.4%e
- (IT) Italy Jan Total Trade Balance: -€1.6B v +€2.1B prior; Trade Balance EU: +€0.6B v -€1.2B prior
- (EU) Euro Zone Jan Trade Balance seasonally adj: €9.0B v €10.9Be; Trade Balance unadj:-€3.9B v -€3.5Be
- (IS) Israel Mar Inflation Forecast: 1.8% v 1.9% prior
- (IS) Israel Feb Money Supply Y/Y: 12.9 v 10.6% prior

Fixed Income:
- (NO) Norway sold NOK7.0B in 12-month Bills; Yield: 1.61% v 1.77% prior