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Sunday, March 17, 2013

Breaking News ... Cyprus Issues Mean a Rough Stock Market Ride Likely Monday

Get ready for a tough day in the market Monday.

Cyprus is causing people to rethink Europe which in turn is giving investors pause throughout the world this Sunday evening.

U.S. stock futures lower after Cyprus bailout news says this:

"U.S. stock futures fell in Asia trading hours on Monday, with Dow Jones Industrial Average futures down 121 points at 14,312.00, Nasdaq 100 futures down 28.50 points at 2,762.00 and S&P 500 futures down 17.30 points at 1,536.30 after weekend news that Cyprus plans to tax bank deposits as part of its bailout program."

And Markets Cast Wary Eye Toward Cyprus Bailout has more details about the world's markets reaction to the Cyprus tax on bank deposits in an effort to deal with the country's huge financial issues:

"Japanese stocks fell in early trading Monday and the euro's value came under pressure in Asia, while the euro zone's shakier government bonds face risks as traders and investors absorb the news of plans to fund a bailout for Cyprus partly with depositors' funds. But few expect a deep and broad exit from riskier bets.

Analysts and investors said they were surprised by the euro-zone authorities' decision to impose a tax on all Cypriot depositors. And while many are relieved that an agreement averting a potential default by Cyprus has been reached, they were left to question what the deal would mean for other countries and fragile banking systems. It also is far from certain that Cyprus's parliament can pass the legislation needed to push the deal through.

Some investors and market watchers said they fear the news could destabilize the euro zone, which many in the market had begun to view as an increasingly benign, if nagging, concern.

"Longer term, this paints a pretty ugly picture for the euro zone," said Brian Jacobsen, chief portfolio strategist for Wells Fargo Funds Management in Menomonee Falls, Wis. . . .

Analysts said the parliamentary vote, which is now expected to take place Monday, may squeak through by only the narrowest of margins. With some lawmakers in the ruling coalition wavering, others demanding some sort of compensation for deposit holders, and at least one parliamentarian currently out of the country and unable to vote, passage is by no means assured.

Analysts believe nerves are set to hit, for the short term at least. . . .

Steven Englander, an analyst at Citigroup, (said) in a note to clients. "The question is whether this becomes a full-blown crisis or a mini-crisis. Given the element of surprise, euro-zone policy makers will probably not have concrete measures prepared to convince depositors elsewhere that this will never happen again. So there is a risk that we could see a downward spike in the euro and significant backing up of [bond] spreads.". . .

"It is all to do with market fears of contagion spreading across Europe because of Cyprus," said Stuart Ive, a senior trader at Auckland-based HiFX. That reaction may be short-lived given the Cyprus economy's small size and, he said, "I find it very hard to believe we will see any contagion following through into Europe."

Most analysts believe the unique nature of Cyprus's banking sector, with its bloated banking sector and high levels of overseas deposits, means that this type of solution is unlikely to be used elsewhere, limiting the scale of any selloff."

Summing Up

Europe is a mess. That's not news.

Cyprus is a mess. That's not news either.

Cyprus is a very small country too.

This tax on deposits in Cyprus likely won't amount to anything more than a day or two of sensational headlines and stock market declines, but I wanted you to know the news before the fit hits the shan tomorrow morning in the U.S. markets.

I'm not worried about it but will definitely let you know if my mind changes, which I certainly don't foresee happening at this time.

In my view, this is a one-off headline event, Cyprus isn't that big a deal globally, and Europe's many issues, albeit serious ones, aren't new.

And Europe's problems won't be in the rear view mirror for a long time to come. That said, things are reasonably stable in Europe and improving worldwide.

Most important for us, the U.S. economy is poised to continue making solid gains in the next several years.

All that said, we should be more concerned about what our government knows best gang is up to in Washington instead of what's going on in Cyprus.

That's my take.

Thanks. Bob.

 

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