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UK stock market commentary (March 19, 2013): All eyes remain on Cyprus

As with anything that’s been to do with the eurozone in the past few years there’s been a great deal of uncertainty surrounding any calamity and we see this again in the case of Cyprus. Many thought it odd when Greece was going through the eye of the storm a couple of years ago, that such a small country can cause such complete mayhem within the marketplace and the same can be said for Cyprus. Whilst equities bounced impressively off their lows yesterday there remains a great deal of worry over the exact form of any sort of depositor tax, if indeed we do actually get one. The Cypriot government is so split that the chances of a vote being passed are slim, if indeed we get one today. The banks remain closed today and are due to continue being so tomorrow, preventing savers and businesses from accessing their cash. So far there has yet to be any ramification of the proposed tax across the eurozone and for now there aren’t any queues forming outside banks in any of the other troubled countries such as Greece, Portugal, Ireland, Spain or Italy. You have to ask yourself however, if you were a European citizen with a large amount of cash in an European bank, chances are that you would be considering withdrawing it all and putting it somewhere else.

Rather like the European market the Dow last night recovered from an initially weak open, reversing course but still ended the session down 60 odd points to 14,450 after a very brief visit to positive territory at one point. This has caused the European indices to commence their sessions in the red with the FTSE down some 15 points at 6440. Clients had been on the short side ahead of yesterday’s sell off and interestingly remain very bearish of the FTSE when one would usually expect them to probably use the move lower as a chance to buy. Not at the moment as they remain of the view that the index has further to fall and not an unreasonable position to take considering all the uncertainty that’s surrounding the eurozone right now.

There’s lots to absorb today and into the rest of the week with UK inflation data, a Spanish bond auction and German ZEW survey this morning. Later there’s US housing starts but then tomorrow is going to be very busy for the UK in particular with unemployment data and the Chancellor’s Budget.

Although it gapped significantly down from Friday’s closing price, the euro rebounded 44 pips to 1.2955 afterwards. Cyprus story has undoubtedly monopolised the news after imposing a so called bank deposit tax trying to raise around $6 billion euro and in exchange get a financial help from EU. However, the proposed measure is yet to be adopted by lawmakers with some also mentioning the possibility of changing the format in order to spare the small scale savers.

Gold closed at $1604.8 yesterday and is still keeping its head above the $1600 mark as investors were and are still nervous about the situation in Cyprus concerning a levy on bank deposits. Safe haven interest in gold has jumped allowing the precious metal to approach a 2 1/2 week high but, confidence that the global economy is still improving has kept demand in check. All eyes are on Fed policy meeting outcomes held on Tuesday and Wednesday were more positive notes on the economy and little or no change in monetary policy are expected.

A late recovery for the shared currency and equities also pushed for a comeback in crude oil which plunged steeply in the early morning trading. Overall, the WTI crude prices gained 65 cents to $94.22 after rumours the terms of that levy in Cyprus might be eased, at least for some categories of savers. The FOMC meeting on Wednesday will be closely watched for any hints on the state of the US economy which should offer extra guidance for the energy complex as well.