March 21 2013

In the broadcast today: EUR and USD New Trading Week Outlook. With Cyprus expected to retain its center stage spot in the week ahead as the troubled country faces a deadline to come up with a solution to the crisis and with important economic reports scheduled for release from the U.S and the U.K., we explore the outlook for the EUR, the USD and the GBP, we list the Top 10 spotlight economic events that will move the markets next week, we examine the consensus forecasts for the upcoming economic data, we analyze the latest trend developments in the EUR/USD currency pair, we take a close look at the price correction in the GBP/USD pair, we note the pullback in the USD/JPY currency pair, we highlight the market’s reaction to the Cyprus government’s Plan B, the U.K. Retail Sales, the Euro-zone Composite PMI, and the U.S. Jobless Claims and Existing Home Sales, we discuss new forecasts from Morgan Stanley and Bank of New York-Mellon, and prepare for the trading session ahead.


USA 

Cyprus leaders meeting to discuss Plan B. Bank levy ‘not discussed’ today. Longer lines at cash machines. The European Central Bank gives Cyprus until Monday to hammer out a bailout deal. Eurogroup president takes responsibility for savings levy…



Powered by Guardian.co.ukThis article titled “Cyprus crisis: Government to create ‘solidarity fund’ after ECB issues Monday ultimatum – live” was written by Graeme Wearden, for guardian.co.uk on Thursday 21st March 2013 14.46 UTC

2.31pm GMT

People are continuing to wait patiently in line at Laiki cash machines in Cyprus. The queues all appear pretty calm:

2.23pm GMT

Key event

In Cyprus, politicians and officials are continuing to work on the details of a new solidarity fund, in an effort to find new funding before the ECB carries out its threat to withdraw liquidity.

Demetris Syllouris, who leads the right-wing Evroko, took part the negotiations led by president Nicos Anastasiades this morning. He has now reporters that the fund would seek donations from ordinary Cypriots, businessmen and foreign investors, according to AP.

1.59pm GMT

Shares have fallen on Wall Street at the start of trading, with the Dow Jones dropping 53 points to 14457, -0.4% as investors catch up with the reports of longer queues at some ATM machines in Cyprus.

European stock markets are still in the red (FTSE 100 down 0.8%, Germany down 1.2%, France down 1.5%).

1.46pm GMT

Analysis: what is the ECB doing?

Threatening to cut funding to Cyprus’s banks is a dramatic step by the European Central Bank, but it reflects fears that Europe’s central bank itself could suffer significant losses if a bank run began in Cyprus.

Under the ECB’s own rules, it can only supply liquidity to a eurozone bank if it is confident that it remains solvent. Without the IMF/EU bailout, Laiki bank’s future looks particularly troubled.

And the ECB’s governing council must fear that it could incur very large losses itself if it continued to supply liquidity to Cypriot banks while depositors systematically emptied their accounts.

The ECB has currently extended €9bn of liquidity to Cyprus’s banking system. Total deposits has been estimated at €60bn, with perhaps €20bn belonging to Russian depositors.

So, the current liquidity probably isn’t enough to cover an actual bank run.

If the ECB offered more liquidity to Cypriot banks to cover deposit withdrawals, and the banks collapsed anyway, then Cyprus could still leave the euro and default on its liabilities under the Target 2 system (Europe’s interbank payment system).

As the Open Europe think tank explains:

Extending the ELA without a clear deal could lead to a significant transfer of risk towards the ECB and questions over its credibility. This would be a particularly poisonous debate in Germany, something which neither the ECB nor the German government would want ahead of the German elections in September.

With this in mind, it is possible to see why the ECB has taken such a strict line here. That said, it certainly ramps up the pressure over the next few days.

Lastly, although the ECB is taking the decision based on technical considerations, it’s clear the good folks in Frankfurt are now deeply embroiled in a highly political debate – precisely what the ECB wants to avoid at all costs.

More from Open Europe here.

1.28pm GMT

Sony Kapoor of the ReDefine thinktank argues that the ECB’s threat to turn off support for Cyprus next week is a challenge to the democratic process – and puts more pressure on eurozone leaders:

12.52pm GMT

Key event

Russia’s two largest state-owned banks have now both said they are uninterested in buying Cypriot banks, reports Howard Amos.

The island-state’s banking assets were one of the bargaining chips Cypriot Finance Minister Michalis Sarris was hoping to be able to use to tempt the Kremlin into offering a rescue package.

“We don’t, of course, have any plans of that sort,” said Andrei Kostin, the head of Russia’s second biggest bank, VTB. “Our interests are that we are given the opportunity to carry out payments and access the accounts of our clients.” VTB has a subsidiary on Cyprus called Russian Commercial Bank which is at risk of losing “millions of euros” in a compulsory levy.

German Gref, the head of Russia’s biggest bank, Sberbank, said last night that he had been approached about buying Cypriot banks, but had turned the offer down.

12.45pm GMT

Medevdev: Cyprus shouldn’t impose bank levy

Over in Russia, prime minster Dmitry Medevdev has said that he is counting on Cyprus’ problems being solved without an compulsory levy on depositors.

“Sooner or later it will be necessary to sort out all the problems there, and I hope that the solution will not be with confiscations, but will be rational and modern,” he said at a government meeting in Moscow on Thursday, the Interfax news agency reported.

Last night Medvedev told journalists that the EU’s behaviour in Cyprus was similar to that of an “elephant in a china shop” and that the plan to tax deposits “looked like theft.”

Medvedev has also came up with a novel solution to turn Cyprus’ problems to Russia’s advantage. The Kremlin should develop the Kuril Islands and Sakhalin in the country’s Far East as new offshore banking destinations, Medvedev told government ministers.

Russia’s ownership of the Kuril Islands is disputed by Japan, and visitors currently require special permission from the security services. Sakhalin is a rain-swept island off Russia’s Pacific coast and the site of a former Tsarist penal colony.

(that’s via Howard Amos in Russia)

12.32pm GMT

Another selection of photos from Nicosia of the lengthening queues at cash machines run by Laiki Bank, one of the two lenders who could collapse if the ECB follows through on its threat to withdraw emergency liquidity next week

Updated at 12.33pm GMT

12.25pm GMT

Updated at 12.34pm GMT

11.56am GMT

Reports from Cyprus that the country’s cabinet will meet to discuss the proposal for a solidarity fund at 6pm local time (4pm GMT or noon PDT).

11.54am GMT

Martin Wheatley, chief executive of Britain’s new Financial Conduct Authority (FCA) which begins life formally next month, has admitted that contagion from Cyprus is a concern.

He also said that the idea of putting a levy on bank accounts “undermines confidence in the banking system” (a reference to the eurozone’s €100,000 deposit protection scheme)

Wheatley was speaking at a press conference in London (my colleague Jill Treanor reports). The FCA will officially replace the Financial Services Authority (FSA) from the start of April, with tougher powers to keep the UK financial industry in line and protect customers.

11.46am GMT

Another option for Cyprus could be to use the energy resources off its coastline as collateral for a stability fund. That fund could then issue bonds to investors, raising some/all of the €6bn which Cyprus needs to satisfy the IMF and the EU:

11.33am GMT

There are several reports of longer queues at some of Cyprus’s cash machine’s this morning – specifically those belonging to Laiki bank — Cyprus’s heavily indebted second-largest lender.

Michelle Caruso-Cabrera, CNBC’s chief international correspondent, tweets two photos:

And here’s another, from freelance journalist Janine Louloudi:

11.18am GMT

Worried officials discussed Cyprus leaving the euro – Reuters

Eurozone officials are increasingly alarmed about the situation in Cyprus, according to the notes of a conference call seen by Reuters.

During the call, which took place last night, officials admitted they were “in a mess” as they discussed whether capital controls (limits on bank withdrawals and cash movements) could protect the country.

Cyprus didn’t attend the call – another worrying sign – as other officials talked about the risk of the country quitting the eurozone.

Reuters reports:

In detailed notes of the call seen by Reuters, one official described emotions as running “very high”, making it difficult to come up with rational solutions, and referred to “open talk in regards of (Cyprus) leaving the euro zone”.

The call was among members of the Eurogroup Working Group, which consists of deputy finance ministers or senior treasury officials from the 17 euro zone countries as well as representatives from the European Central Bank and the European Commission. The group is chaired by Austria’s Thomas Wieser.

Cyprus decided not to take part in the call, a decision that several participants described as troubling and reflecting the wider confusion surrounding the island’s predicament.

“The (Cypriot) parliament is obviously too emotional and will not decide on anything, if Cyprus does not even feel that they can attend the call it is a big problem for us,” the French representative said, according to the notes seen by Reuters. “We have never seen this.”

The full story is online here: Exclusive: Euro zone call notes reveal extent of alarm over Cyprus

Updated at 11.22am GMT

10.53am GMT

Here’s the quote from the speaker of the Cypriot parliament, Yiannakis Omirou, following this morning’s talks on a new bailout plan:

We didn’t discuss a (deposit) haircut and we are not reverting to it.

10.47am GMT

Report: Cyprus to create National Solidarity Fund

Reports out of Cyprus in the last few minutes suggest that the country’s leaders have decided to create “national solidarity fund”, at this morning’s talks in Nicosia.

Averof Neophytou, who is the deputy leader of the ruling Democratic Rally party, made the comments to reporters in Nicosia.

There’s no word on what the fund would includes – but reports last night suggested pension assets, various state assets, and even property owned by the Church of Cyprus.

The parliament’s speaker has also been speaking, suggested that a vote will not take place on the plan today. He also indicated that the leaders did not consider the issue of a bank levy — suggesting a savings tax might now be off the agenda.

More to follow!

Updated at 10.51am GMT

10.46am GMT

Video: Cyprus awaits ‘Plan B’ to avoid bankruptcy

10.30am GMT

Cyprus top central banker stays calm

Cyprus’s central bank governor, Panicos Demetriades, has declared that the country will manage to hammer out a financial support package in time.

Soeaking in Nicosia a few minutes ago, Demetriades said:

I expect a programme of support for Cyprus by Monday.

No suggestion of what it will be, though….

…but Jeroen Dijsselbloem, the Eurogroup president, made the important point during his appearance at the European Parliament’s economic affairs committee this morning: that taxing large depositors in Cyprus is a better, fairer way than raising money from taxpayers.

Dijsselbloem insisted that the eurogroup considered alternative solutions, but concluded that “many of the taxes we looked at would have touched the local people”.

And as reported at 8.35am, Dijsselbloem is adamant that the burden of a bank savings levy should fall on those with big deposits (who are arguable investors, not simply savers).

Reuters has full highlights of his appearance here.

Updated at 11.14am GMT

10.13am GMT

Stock markets fall

Europe’s stock markets are sliding this morning, following the ECB’s threat to withdraw support for Cyprus’s banks next week (see here onwards). The disappointingly weak PMI data (see 10.05am) has also driven shares lower:

FTSE 100: down 56 points at 6376, -0.87%

German DAX: down 66 points at 7935, – 0.8%

French CAC: down 39 points at 3789. -1%

Spanish IBEX: down 92 points at 8324, -1%

Italian FTSE MIB: down 92 points at 15924, -0.6%

The euro is also dropping, hitting a five-week low of 85.05p against the pound. It’s back below $1.29 against the US dollar too.

10.05am GMT

Eurozone downturn deepens; led by France

Europe’s economy was already weakening before the Cyprus crisis blew up, bleak economic data released this morning has shown.

Europe’s private sector is shrinking this month at a faster rate than in February, and rather quicker than analysts had expected.

Markit’s ‘flash composite PMI’, which measures services and manufacturing firms across the eurozone, fell to 46.5 this month, from 47.9 (any number below 50 means the sector contracted)

France’s economy looks particularly bleak, with its service sector PMI tumbling to a worryingly weak 41.9. That’s the lowest level since February 2009, and the dark days after the collapse of Lehman Brother.

And growth in Germany also slowed, with its composite PMI (services and manufacturing) falling to 51.0, from 53.3.

It suggests the eurozone recession is deepening .

Chris Williamson, Markit’s chief economist, warned that the data was pretty disappointing, with the Cyprus crisis probably already making the situation even worse:

Events that hit business confidence can have a very rapid effect on the data and so there is good reason to believe that responses we collect this week will on average be more negative.

Updated at 10.53am GMT

9.47am GMT

Meanwhile over in Moscow, Cypriot finance minister Michael Sarris says talks will continue with the Russian government.

He insisted negotiations were going well, telling Reuters:

The banks are the ultimate objective in any support we get, so it’ll either be a direct support to the banks or the support that we get through other sectors will be channelled to the banks, because this is our biggest challenge to recapitalise the banks.

Updated at 11.12am GMT

9.44am GMT

Key event

If the ECB does pull the plug then there could be turmoil in Cyprus next Tuesday, when the banks were scheduled to finally reopen.

And the deposit guarantee scheme which is meant to protect depositors in the event of a bank collapse could quickly be proved worthless.

As Frances Coppola (a former banker) has blogged about here, deposit guarantee schemes are only as good as the national government who stands behind them. And Cyprus does not appear to have the assets to hand to cover the first €100,000 deposits in its banking sector:

So, Coppola explains:

It is time that depositors were told the truth. The lack of a common deposit insurance scheme in the Eurozone means that deposit insurance is a luxury available only to those countries that can afford it – which are also the countries that least need it. Everywhere else, it is a sham.

Potentially awful news for Cypriots, as well as thousands of ex-pats from the UK and beyond.

More here: Sham guarantee

Updated at 2.46pm GMT

9.20am GMT

Some early reaction to the ECB’s threat to stop supporting Cyprus’s banks next week:

9.09am GMT

ECB gives Cyprus until Monday

BIG NEWS: The European Central Bank has announced that it has agreed to continue supplying emergency funding to Cyprus’s banks until next Monday.

But if the bailout hasn’t been agreed by then, the ECB would step away. It’s quite an ultimatum.

Here’s the statement:

The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013

Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks.

That sets Nicosia a clear deadline — find €6bn by next week, in a way that satisfies the IMF and the European Union, or your banks collapse.

8.55am GMT

Jeroen Dijsselbloem has taken responsibility for the fateful decision that Cyprus’s smaller savers with less than €100,000 in the bank should be taxed:

I take full responsibility, I’m the chairman [of the eurogroup].

Dijsselbloem then points out that the various parties in the room last Friday night/Saturday morning all had their own agenda, but that it was his job to steer the group towards a compromise that worked.

(our inside story of the negotiations has the background, btw)

8.47am GMT

8.41am GMT

Dijsselbloem: Systemic risk from Cyprus

Jeroen Dijsselbloem went on to warn:

[Cyprus] is definitely a systemic risk, and the unrest of the last couple of days have proved that, unfortunately.

He also cautioned that a new large Russian loan would not solve Cyprus’s problems:

Building up the debts of Cyprus does not help it towards a sustainable future.

(And if the International Monetary Fund isn’t convinced that Cyprus’s debts are sustainable, it would not support the bailout….)

8.35am GMT

Dijsselbloem: Plan B must be fairer

Jeroen Dijsselbloem, Dutch finance minister and head of the eurogroup, is discussing the Cyprus crisis at the European parliament now.

It’s being streamed live, here.

Dijsselbloem told MEPs that the eurogroup felt it was fairer that Cyprus’s €6bn contribution to its bailout and bank restructuring should come from its bank savers, particularly from “non residents with large deposits”.

He “strongly hopes” that the new package being drawn up in Cyprus offers a “more fair balance”.

UPDATE: Here’s the key quote:

The Eurogroup thinks it’s very important that we should have a fair burden share, and that means a larger contribution from large depositors than, of course, from small depositors.

Updated at 10.54am GMT

8.24am GMT

Key event

Over at Dialogue Russia-EU in Moscow, ,European Commission president Jose Manuel Barroso has said he is worried about the situation in Cyprus, but tried to sound positive:

I’m very concerned with the recent developments in Cyprus, mainly because of the consequences for the citizens of Cyprus.

We have in the past solved bigger problems. I hope that this time a solution can also be found.

The session is being streamed live on Russian TV, here.

8.05am GMT

Cyprus works on Plan B

Good morning, and welcome to our rolling coverage of the unfolding crisis in Cyprus.

The Cypriot government is racing to pull together a new plan today to secure its bailout package and prevent the collapse of its banking sector.

This “Plan B” has just been presented to party leaders this morning, and could possibly be voted on later today.

State TV have reported that the plan could include a levy on bank deposits over €100,000, after MPs dramatically rejected the original plan to tax smaller deposits on Tuesday night.

It could also potentially include a new loan from Russia, nationalising pension funds, or restructuring and selling off – or even closing down – parts of the banking sector.

However it is put together, Plan B must raise enough money to satisfy the International Monetary Fund, the ECB and the rest of the eurozone, and unlock Cyprus’s €10bn aid package.

But there are no easy answers in a game of brinksmanship that continues to spread concern across the eurozone, leaving the Cypriot people facing a deeply worrying future.

Meanwhile Cyprus’s finance minister, Michael Sarris, remains in Moscow negotiating with the Russian government. Sarris didn’t appear to make much progress yesterday, raising fears that his dash to Moscow was failing.

Speaking of Russia…European Commission president José Manuel Barroso is in Moscow today for “Dialogue Russia-EU”, and meetings with prime minister Dmitry Medvedev.

Medvedev was scathing about the crisis last night, particularly the plan to tax bank deposits, telling reporters that:

I cannot compare it to anything but some decisions made at a certain period of time by the Soviet authorities that did not care much about people’s savings.

Which should make for a lively meeting….

Updated at 11.15am GMT

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