Accendo Markets Weekly Roundup : Cyprus & bail-ins added to list; Uncertainty vs. risk appetite

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And so we add Cyprus to the list of Eurozone sovereign debt crisis bailouts. We can also add bail-ins of bank deposits (haircuts on uninsured deposits >€100K) and total bank investor wipe-outs to the list of self-help measures imposed by those holding the bailout purse strings. Politicians can shout all they like about Cyprus (often with mixed messages) being a special case and not a template for future bailouts, but after 3 years, 4 countries and a cool €400bn of assistance, markets have learnt the hard way that once tried there is every chance of it being tried again. Greece, Ireland and Portugal were all unique once. Not now.

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Nonetheless, swift resolution (within a fortnight) thanks to the relatively small size of the island’s financial woes and extent of bailout help required seems to have maintained some market confidence, hence the recent bounce, even if the troika of bailout powers (EC, IMF, ECB) are a concern after making an example of Cyprus, trying to bail-in all bank deposits (even those <€100k), hurting the hordes of Russians sheltering money there, punishing the island for its lax regulation and billing it as a bank restructuring to bypass the need for parliamentary approval. Trust in the banks has now unsurprisingly waned significantly with nobody certain whether their money is safe anymore. As one Cypriot put it “I have an instant access account, but for Eurozone politicians, not me”.

In fact, today saw Cypriots given access to their banks for the first time in 10 working days, albeit with very strict capital controls to avoid a flight of capital which would likely ruin the carcass of a banking sector that made Cyprus successful but also proved its downfall (it swelled to a worrying 8x GDP) and would probably result in a third bailout (Russia bailed it out first, privately in 2011). With Cyprus not unique in relying heavily on its financial sector contagion in the single currency bloc may have been avoided for now with a quick restricting of the island’s main banks but regional uncertainty remains (hence narrow trading range of last week) thanks to Italy’s latest debt auction disappointing and its political deadlock meaning fresh elections likely in June.

Note the likes of Spain, Italy, Slovenia, Malta, even Luxembourg also being muttered as potential candidates to suffer the same Cypriot fate with the entwined national bank/government relationship possibly seeing account holders lose access to money and haircuts enforced to pay for government and national banks’ excess. The risk of contagion is thus still there. In addition, with a bailout is one thing, but ability to pay it back is another. With Cyprus’ prized financial sector having imploded (trust and capital have fled, unlikely to be much of an earner for the country), it’ll  be down to the underlying tourism, shipping and natural resources sectors to pay back the bailout debt. Ireland may be on the mend, but Greece and Portugal are still struggling. Cyprus likely to join the latter.

Despite another bailout and chapter in the crisis saga the UK’s flagship index FTSE100 remains resilient, less than 2% of pre-Cyprus highs of 6550, with a trendline of 3-month rising support still intact and underlying risk appetite seeing markets want to push back towards early week highs as we write. Note stateside bourses making new highs despite concerns on this side of the pond.  Help as hand from the usual suspects of accommodative central bank policy (low rates, QE) and backstops (ECB) and some encouraging glimmers of light on the macro economic data front (some genuine growth, some stability and some just simply less bad), although on the whole data this week remained mixed at best.

With this being the end of the quarter, we’re not seeing the usual weakness as investors crystallise gains (FTSE100 +9.1% in Q1). This could bode well for the start of Q2 with the underlying risk appetite we spoke of keeping equities buoyant, another bailout being taken well by more thick skinned investors and a hopefully continued stream of ‘less bad’ macro-economic data maintaining hopes that economic growth becomes a regular on the investment market menu. Until next week. Bon appétit.

For any commentary/analyst opinion on anything CFD/Spread Bet/financial markets-related, please contact research@accendomarkets.com

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Accendo Markets is an online trading services provider, offering CFDs, spread betting and forex to retail (private) clients. Accendo Markets was established in 2007 and has since gone on to win various awards including "2012 Winner of Best Execution only CFD provider" at City of London Wealth Management awards. Accendo Markets Ltd. is authorised and regulated by the Financial Services Authority (FSA). Register now for your FREE trading Guide Risk warning CFD trading, spread betting and Forex trading can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. Authorised and regulated by the Financial Services Authority.
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