The Morning After

Tyler Durden's picture

Having soared in a kneejerk response to news of the Cyprus deal which was a replica of what had been expected to take place last Friday, and thus largely priced in, it was not surprising to see the EURUSD gradually drift lower in the overnight session, printing below 1.30 at last check (and the Cyprus euphoria was not enough to push Shanghai green(. And while S&P futures ramped alongside the carry pairs early in the overnight session, the ramp has so far been contained, as the recently re-carried USDJPY pair has also refused to take out the 95.00 level in an upward direction.

In terms of events, as UBS points out, all eyes should remain focused on Cyprus today, especially since there is no data being reported elsewhere. Financial markets closed Friday on a positive note, as an agreement on Cyprus appeared to be taking shape and a minor relief rally across most asset classes overnight vindicated hopes of a positive outcome as details of the detail were announced overnight. More clarity is still required on some aspects of the agreement (deposit and bondholders) but the fact that the national parliament does not need to vote again should stop the deal from unravelling as it did last week. Whether this is enough to restore confidence and prevent a possible cautionary deposit flight from Cyprus remains to be seen.

However, the key variable now remains Russia, whose first deputy PM Shuvalov said is waiting for final Cyprus deal before reacting; does not rule out renegotiating Cyprus loan. If anyone can tip the boat on Europe now, it is Russia.

In terms of market impact, EUR/USD only advanced by one figure Friday on hopes of a likely accord and in the end finished the week at the same level as it had started it. In the same vein, the rates market reaction was just as benign, with the 10Y EUR swap rate also unchanged at the end of the week (at 1.6950%). The momentum of receiving flows should be tempered and the 1.60%-1.80% range should hold this week unless negative contagion resumes.

UBS' conclusion: all in all, turbulence from the Euro crisis is not over. Let us not forget that Italy still does not have a government and the German national parliament will have to give its seal of approval on Cyprus as we await more bailout details.

For a brief summary of the remaining overnight events, here is Deutsche's Jim Reid:

We've often talked about how dramatic European issues tend to get resolved at one minute to midnight, well for those of us in the UK, the new deal for Cyprus literally came through at almost exactly that time last night. As with last weekend’s package, the latest agreement will see the bail-in of depositors - but with the crucial difference being that insured depositors will not be touched under the new agreement. It seems from the outline of the deal provided by the Eurogroup, Laiki will be “resolved immediately” with a “full contribution of shareholders, bond holders and uninsured depositors” via Cyprus’ newly adopted Bank Resolution Framework.

The deal, which has been approved by the 17 Eurozone finance ministers as well, will see Laiki split into a “good” bank and a “bad” bank. The good bank will be folded into the Bank of Cyprus (BoC) while the bad bank will be wound up over time. BoC will assume EUR9bn of Laiki’s ELA liabilities, and will be recapitalised through a deposit-to-equity conversion of uninsured deposits such that a capital ratio of 9% is achieved. The bail-in of large Laiki depositors will contribute about EUR4.2bn to the recapitalisation. The Eurogroup reiterated that “all insured depositors in all banks will be fully protected in accordance with the relevant EU legislation”. The Governing Council of the ECB will provide liquidity to the BoC as part of the deal. The deal will unlock EUR10bn in funds from the Troika’s “macro adjustment programme” which, apparently, will not be used to recapitalise Laiki and BoC. Cyprus will receive the first funds in May.

What’s unclear at this stage is how much of a loss will be imposed on uninsured depositors at both Laiki and BoC. Unnamed officials quoted by the FT said that uninsured deposits at Laiki will be “severely cut”. At the same time, the FT and Reuters have reported that losses on uninsured depositors at BoC could be as high as 40%.

In terms of the next steps, German FM Wolfgang Schaeuble told the media that Cyprus’ parliament will not need to approve the deal given that the necessary legislation to implement the deal has already been passed. Schaeuble added that "additional legislation would only have been necessary if a levy on uninsured deposits would have been raised but (not) for restructuring of the banks in question” (Reuters). Schaeuble said Germany's lower house of parliament would not need to vote on the bailout at this stage but a vote could be held this week if legislators wanted it. Cypriot Finance Minister said the aim was now to reopen banks as soon as possible.

According to the Eurogroup, there will be an appropriate downsizing of the financial sector, with the domestic banking sector reaching the EU average by 2018. Further to that, the Cypriot authorities have reaffirmed their commitment to step up efforts in the areas of fiscal consolidation, structural reforms and privatisation. Reforms include an increase of the withholding tax on capital income and of the corporate income tax rate. There will also be agreement between Cyprus and the Russian Federation on a financial contribution. The IMF estimates that Cyprus debt will be about 100% of GDP by 2020.

In terms of the market reaction, EURUSD gained 0.5% and S&P 500 futures jumped 6pts higher on the initial headlines that the troika and Cyprus had reached an in principle agreement. EURUSD is holding above 1.300 while S&P500 futures are 0.4% higher as we type.

Gold has seen some interesting moves, selling off on the initial headlines before rallying to trade 0.2% higher overnight. 10yr UST treasuries are trading 4bp higher.

Briefly turning to Asian markets, equities are trading broadly higher with solid gains seen on the Nikkei (+1.9%), KOSPI (+1.4%) and Hang Seng (+0.8%). Chinese equities are edging lower this morning on some profit-taking following four consecutive daily gains. Regional credit markets are 2-3bp tighter this morning.

Turning to other news, Fitch placed the UK’s AAA rating on “rating watch negative” late on Friday. Sterling dropped 0.2% against the euro on the headline but recovered most of the move into the end of trading on Friday. Fitch said the action reflects the latest economic and fiscal forecasts published by the Office for Budget Responsibility that indicate that UK government debt will peak later and at a higher level than previously expected. Fitch expects to complete its review of the UK’s rating by the end of April.

Elsewhere, the International Monetary Fund is reportedly planning to cut its U.S. growth forecast from 2% (estimated in January) to 1.7% for this year due to higher taxes and spending cuts, Italian news agency ANSA said, citing a draft of the IMF's next World Economic Outlook report (Reuters).

Turning to the day ahead, the immediate focus will be on the market reaction to the weekend’s developments in Cyprus. Today’s data docket will be relatively light with the only release of note being Italy’s consumer confidence. Ben Bernanke and the IMF’s Blanchard speak today at the London School of Economics on ‘What Should Economists and Policy makers Learn from the Financial Crisis?’. The discussion will be chaired by Mervyn King and is scheduled to start at 5:15pm London time. The NY Fed’s Bill Dudley speaks today at the Economic Club of NY. Italy will auction inflation-linked bonds.

Looking ahead to the rest of the Good Friday-shortened week, the Bank of England’s Financial Policy Committee is expected to report on UK bank capital levels on Wednesday, which may be followed by announcements from banks on specific capital actions they will take. Data-wise, in Europe the highlights are French and Euroarea consumer confidence on Tuesday and Wednesday respectively. German unemployment and Euroarea M3/credit data are due on Thursday. In the US, the highlights are consumer confidence and durable goods orders on Tuesday; pending homes sales on Wednesday; Q4 GDP revisions and Chicago PMIs on Thursday and personal income/spending on Friday. In Japan, a number of key macro updates are scheduled for Friday including industrial production, CPI, construction orders, unemployment and household spending.

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zorba THE GREEK's picture

They have agreed to agree on a plan whose details will be worked out later.

That sounds reassuring. Where have we seen this before?

Ghordius's picture

the way I see it they went back to Plan A - which is in line with what the IMF (not defending the institution) initially adviced. If you want to see it cynically, you could say that they made a huge eastern bazaar outcry scene with Plan B and C so that Plan A - to which the Cypriot parliament originally agreed and legislated for - would be more palatable

SDShack's picture

No, Plan A from the IMF was take the uninsured deposits with Parliament Approval. Plan Final is take the uninsured deposits WITHOUT PARLIAMENT APPROVAL. That tells you the extent to which the bankers will do anything to avoid the rule of law. And don't say they can liquidate a bank with bankruptcy law without paliament approval. Since when does bankruptcy allow depositers to be shafted BEFORE equity holders and bond holders? I could go on and on about how illegal all this is, but many more have already explained it. The "final solution" is not what was originally proposed at all. The emporer now has no clothes. The bankers have been totally exposed for the greedy above the law pricks they are. No one with money in a bank is safe anywhere. "Full faith and credit" (of a bankrupt country) is the only guarantee you got.

Urban Redneck's picture

Anyone read the details of their "Bank Resolution Framework" and are there any backdoor bailouts for their preferred interests buried in it?  Something stinks, and it's not just rich Eurocrats who don't bathe often enough.

Van Halen's picture

Where have we seen this before?


SDShack's picture

General (Government) Motors

tom a taxpayer's picture

Even if Cyprus parliament approval may not be required, Parliament can choose to get involved as much as it wants to reject or approve or modify the deal. Parliament just passed a whole series of banking laws. Parliament can certainly decide whether to accept or reject this whopper of a deal.

zdk45's picture

Well here we go...That's just the start...Today CBS fawning over zh, next thing you know:


Guest Post: Steve Liesman

And! Remember, it's Pick the Big Bad Booyah Bull Close and win!!!!

Also, Exercise professionalism when addressing our Chariman in Chief Dr. Bernanke. He is guiding us and the U.S. So the least we can do is show due respect...if you cannot, banned. Carry on.


I will remember these good old days Tylers...Thanks for everything...don't forget us when you reach the pinnacle of all human success...MSM....



zdk45's picture

re: One year old....


I...did not see that...I shall downvote myself...and head back down to the parents basement with my dignity intact. adieu

Tuffmug's picture

CBS article is 1 YEAR OLD!!

carlsbro's picture

Sorry ZH, no end of the world

css1971's picture

Looks like it's started to me.

You young folk are so impatient. It has some really thick skulls to filter through first.

toys for tits's picture


Your right, it's tough to make a u-turn when a core belief has been shaken.


On a different note, those idiots now say deposits are protected.  Just shows that they will do whatever they want whenever they want:

The Eurogroup reiterated that “all insured depositors in all banks will be fully protected in accordance with the relevant EU legislation”

carlsbro's picture

Bernake is going to fistfck all of you, gold-eaters

Downtoolong's picture

There never appears to be and end of the world. That's because, as centralization and consolidation of power and control of wealth progresses, stories of the few winners are trumpeted and played over and over again, while the carnage of the many victims is quickly swept up and buried out of sight.

CelticCanuck's picture

They can only prop it up..........until they can't. They can only kick the can down the road.......until they can't. They can only screw the sheeple...........until they can't. That day is coming.

TeamDepends's picture

Bloomberg:  5.4 Billion of deposits in Laiki bank will disappear.  Disappear?

css1971's picture

Yes... The money you think you have in your bank account, doesn't actually exist.

To clarify; the money in your personal bank account has already disappeared, but the bank have written some numbers into an account book for you. This is fundamentally how banks work. The only question is when do you find out it disappeared.

css1971's picture

No lender of last resort in the EZ anymore?

Seems like a scorched earth policy to me. I'd expect capital flight out of the PIIGS to the US or Germany to accelerate. Oh and the other bank to collapse to withdrawals as the locals take cash.

Ghordius's picture

ELA is still flowing, isn't it? In my book this is "lending of the last resort". At the end, nobody is willing to say so but the very membership in the eurozone was fundamental for this bail-in - without it, it would have ended in bankrupcies

not defending the bailout/bail-in/bankrupcy decision per se - this is a political matter - just the fact that Cyprus's membership gave them more options - or as some say "more rope to hang..."

imagine the same scenario with a Cypriot Pound - and imagine the Cypriot people's frolicking at an instant heavy devaluation

css1971's picture

ELA is still flowing, isn't it?

Was it really? So why the crisis? Why no orderly disposal of assets?

Looks to me like the hose pipe is drying up, or am I reading that wrong?

Ghordius's picture

absolutely - flowing, but not limitless (tried to give you a +1, but you started your comment in italics)

smacker's picture



Are you still saying that this Cyprus deal will be voted on by its parliament?

Ghordius's picture

no, as I wrote elsewhere (3371440 & 3371427) they came back to the (damn) IMF's Plan A, which was pre-approved by the Cypriot parliament

In fact the leader of the opposition party and president of the parliament released a statement saying that he was fine with the current plan. If I remember it correctly they have already made the necessary Cypriot laws on the matter

meanwhile the package will also have to be approved by the Dutch, Finnish, German et al parliaments

I also commented about the Squid's gentle request for the removal of the current elected Cypriot President (3371483)

I comment those affairs the way I see them, but I'm willing to change my mind if presented with evidence, or better, proof

meanwhile I maintain that the eurozone works as designed

smacker's picture

Well, more carefully phrased cop outs from you, I see.

Yes, "the eurozone works as designed" you say. At least more or less.

But as you well know the EU and by extension the EZ was NEVER designed or intended to be any form of democracy.

The EU is a giant socialist construct run by unelected crats. Socialism and democracy do not get along together. Jackboots are the inevitable consequence.

overmedicatedundersexed's picture

jon corzine on the way to cyprus, to oversee the "fair" dispostion of assets, some in box a some in box b some in my pocket, no lets start over little in box a little in box b, most in our pockets, there is no controlling legal authority..what fun when they get to the gold stored in the failed bank..this stinks but many will get richer.

FinkPloyd's picture

Tyler , and everyone else ...

 Which international companies have accounts in cyprus, that just went boom ?? i.e. (contagion)


Only relavent info i could dig up was here:

UH-60 Driver's picture

I guess there really is "No such thing as a Mafia"...except for the banksters.

apberusdisvet's picture

The precedent has been set; sheeple must pay for bankster gambling.  If you cannot connect the obvious dots of this fact with the growing US police state, you deserve to be fleeced.

sumo's picture

Drones with rubber bullets and tear gas, coming to a demonstration near you:

"...In October 2011, police in Montgomery County, Texas, received delivery of a ShadowHawk unmanned aerial vehicle from Vanguard Defense Industries. The ShadowHawk can be equipped with a TASER weapon system, which delivers a high-voltage electronic shock through what Vanguard calls "multi-shot XREP launching" delivered by a "patented targeting- and firing-system." Montgomery County has said, however, it's considering weaponizing its ShadowHawk with rubber bullets and tear gas instead..."

new game's picture

liberty took a direct hit.

MyBrothersKeeper's picture

Where is the video of Cypriots dancing in the streets?  After all they have been "saved" by the Troika.  And what about the hoards of people from all over the world lining up to invest capital in Europe and in European country bonds via the banks?

short screwed's picture

No problem there.  Ben has their backs.  wait and see, there will be plenty of demand for Spanish and Italian junk paper.

The Invisible Foot's picture

And it burns,burns,burns....

AnAnonymous's picture

Another day, another 'american' day.

The 'american' elite, servant to their master, We The People aka the 'american' middle class, have solved another problem to the benefit of the 'american' middle class.

Just as the 'american' elite is supposed to.

sumo's picture

Hmm. This reminds me of a Sofia Coppola movie, for some reason. Always liked Bill Murray.

Tao 4 the Show's picture

There are no winners of this situation here. They don't bother with Internet forums. And if any of them did read your pitiful whining, they would only laugh.

TheFourthStooge-ing's picture

AnAnonymous whined:

Another day, another 'american' day.

...and another Latvian day, another Belorussian day, another Paraguayan day, another Sri Lankan day.

Of course, another day, another Chinese citizenism propagandistic crackpottery day.

The 'american' elite, servant to their master, We The People aka the 'american' middle class, have solved another problem to the benefit of the 'american' middle class.

Just as the 'american' elite is supposed to.

My, my, my... On what day do cheap Chinese citizenism propagandists start to provide healthy and cogent propaganda, propaganda that can be believed, propaganda that requires time to be debunked, propaganda that is not an act of faith and submission?

Chinese Communautist Party Ministry of Truth propaganda is somehow lacking in quality control.

max2205's picture

Uk earnings revised to loss.  Poof.   Fucking liars.  No jail I bet


faboutlaws's picture

The slaughter of the Euroweenies is about to begin. Get out the popcorn and go long on Polonium 210. The nice thing about that isotope is that there is no doubt where the message is coming from. Help wanted immediately: 5000 food tasters with geiger counters.

jmcadg's picture

The blatant runaround of a vote is frankly deplorable. Are they saying Cyprus can't even vote to get out of the Euro?

Is this for real? Are the Cypriot parliament going to stand for this? If they are, they are showing they are totally paid for and the last vote was just a sop to the people.

If that is the case, the Cypriot people need to get their pitchforks out!

sumo's picture

"Are they saying Cyprus can't even vote to get out of the Euro?"

You know the answer. Reminds me of a point Chris Hedges often makes about the US: it's impossible to vote against the interests of Goldman Sachs.

Van Halen's picture

Read this short article and tell me that this isn't exactly what happened last night. In the EU a NO vote is temporary while a YES vote is forever...


Credit goes to another ZH'r for this - can't remember who. Sorry!

orangegeek's picture

The Euro daily has been in a down trend since the start of February.


There are bigger issues at hand.  Cyprus is a sideshow.

Overflow-admin's picture

"The IMF estimates that Cyprus debt will be about 100% of GDP by 2020."


I hope so for Switzerland, too (it's around 400%, same as Cyprus)...


BUT - SARC OFF - FUCK YOU BERNANKE!!! And so much for the debt/gdp ratio.