Cyprus Contagion Spreads As European "Omnishambles" Return; Euro Under 1.28 For First Time Since November

Tyler Durden's picture

While everyone likes to hate on Cyprus, it is Italy that is the focal point of today's European "omnishambles" that has seen the EURUSD tumble to a five month low as of this writing. First it was economic data that scared investors, with Industrial Sales and Orders tumbling far below expected, posting numbers of -1.3% and -1.4%, respectively, on expectations of an increase. Retail sales were just as ugly, declining by -0.5% in January, on expectations of an unchanged print, with the December 0.2% number revised also into negative territory.

Then Bersani, who has been tasked to form a government until tomorrow, said that the possibility of a broad coalition government does not exist, adding that no lasting government is possible without him as a premier, and requesting that Grillo's Five Star party not block his path to government, for which we wish him the best of luck as moments later Five Star ruled out all external support for a broad government and would vote no confidence for Bersani.

Then we got news that the Italian financial police has searched the Nomura in Milan in connection with the Monte Pasci case, which means even more skeletons in the closet are about to be uncovered. Finally, Italy just held a 3.5% 5 and 4.5% 10 year bond auction in which the country raised less than the maximum targeted €7 billion, and in which the Bid to Cover on the 5 Year dumping to the lowest since 2002, with bidding quite soft and the yield rising to 3.65% versus 3.59% previously. This has resulted in a blow out in Italian yields by 16 bps to 4.73% compared to 4.705% earlier.

Not helping matters was Euroarea March Economic Confidence which dropped from 91.1 to 90, missing expectations of a modest dip to 90.5, with declines seen in the Services, Retail, Construction and Business categories, and only Consumer rising modestly. The recent Cyprus risk flare out should put an end to that.

As for Slovenian bond yields, especially the 4.375% of 2021, one word: whoooooosh.

End result, as noted yesterday, has been an acceleration in the rush out of the EUR, with the EURUSD sliding to under 1.28 for the first time since November 21, a blow out in Greek bonds with yields pushing up 55 bps to 12.68% and a push for real safety (sorry, not the DJIA) in the form of German 2 Year bonds, which have dipped to -0.018%, the lowest since December, on rising fears that despite endless lies out of its bureaucrats, Europe may not be fixed after all.

Keep a close eye on Cyprus where as of right now, banks are still set to reopen tomorrow, and where moments ago the Central Bank demanded the resignations of both Laiki and Bank of Cyprus bank boards. Hardly a stamp of trust and approval 24 hours before the bank run begins.

In terms of broad activity, here is SocGen's overnight take:

The broad equity market complex tentatively moved on yesterday from the Cyprus bailout with the USD following risk assets higher despite two disappointing US economic reports, one on consumer confidence and the other on new home sales. There was some reprieve in the confidence data in that labour market conditions, and thus employment growth, are holding up. This should reinforce the positive momentum as we head into Q2, but it remains too soon for the Fed to take its foot off the accelerator. To this end, markets will be listening attentively to what Fed members Rosengren, Pianalto and Kocherlakota have to say.

US pending home sales come out today, while the focus in Europe will be on the Italian bond auctions (2018/2023) and the monthly confidence reports from the EC. The latter are set to highlight a possible worsening in economic conditions as we head towards the end of Q1, with the Cyprus bailout and ramifications for the European bank resolution framework i.e. bail-ins, possibly causing a further dent in household confidence in early Q2. A raft of Italian data is due, but the focus will be on Bersani's report to president Napolitano on his latest government talks. As discussed yesterday in ‘SEK: a double whammy', SEK bulls could be strengthening their grip on EUR/SEK which may cause a return to the February lows below 8.30 in the event of strong confidence data.

‘The last leg of the US assets rally' was released yesterday and discusses SG's latest Cross Asset strategy. It features seven key calls for the 3-12 month investor horizon with portfolio recommendations primarily based around the Fed mulling exit strategies as the US economy recovers, a China slowdown and a dovish BoE.

Finally, here is the traditional recap from DB's Jim Reid:

A day after sending markets into a spin Eurogroup President Dijsselbloem reiterated that “risks (of bank failures) should fall on those who take the risks, and not the taxpayer”. Interestingly, Mr Dijsselbloem said that he didn’t regret his comments earlier in the week and that Cyprus “does fit into the new approach towards bank rescues that is gradually evolving” (WSJ). Officials at the ECB seem to hold a slightly different view though with Beniot Coeure from the ECB’s executive board commenting that he thought Mr Dijsselbloem was “wrong to say what he said”. Those comments were echoed by Ewald Nowotny who stated that Cyprus is special case and is "no model for other instances".

In Italy, media reports suggest that the centre-left’s Bersani will meet with party leaders from the 5-Star Movement today, as part of his negotiations with major political parties to form a government. Bersani will report the results of his talks to President Napolitano later today or tomorrow. As far as current progress is concerned though, hopes of a working coalition with the centre-right’s PDL look bleak. PDL party secretary, Angelino Alfano told reporters after a meeting with Bersani yesterday that "our positions are still very distant from each other, and if they remain distant in the next 48 hours we will affirm that the only way is to go back to vote". So it looks like we will be hearing more on this in the next day or two.

Turning to Asia, the situation on the Korean peninsula remains a focus with the WSJ reporting that North Korea has ordered the country’s rocket and artillery units to be on highest alert to strike bases in the US mainland, Guam, Hawaii, and other targets in the Pacific and South Korea. The article says that the move comes after the US and South Korea signed a military contingency plan to respond to potential attacks from North Korea. South Korea earlier raised its alert level near the demilitarised border zone but that alert has been lifted as we go to print. For the time being, the news has had a muted impact on the KOSPI (+0.4%) and the Korean Won (-0.5%) but a number of Korean defense stocks are up 5 to 10% overnight.

Elsewhere in Asia equities are trading higher across the region on the back of the S&P500’s solid gain yesterday. There has been little news flow in the region outside of Korea. After a bout of risk aversion over the last week, USDJPY has resumed its climb and is trading 0.3% higher this morning at 94.75. Regional credit markets are 1-2bp firmer this morning while 10yr UST yields remain steady at 1.91%.

In terms of the day ahead, the Eurozone’s economic sentiment survey for March, Italian industrial orders and retail sales are the main data releases in the euro area. Italy will also auction 5yr and 10yr bonds. In the UK, the Bank of England’s Financial Policy Committee is due to publish a report on the capital levels of UK banks. Across the pond, US pending home sales for February will be the main focus. Several members from the Fed are scheduled to speak today including the Boston Fed’s Rosengren, the Cleveland Fed’s Pianalto and the Minneapolis Fed’s Kocherlakota.

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HedgeAccordingly's picture

6E getting a bit over done.. this kinda llike buying apple @ 700 shorting 6E under 1.28 ...


30 year bond up almost 40 ticks in 2 hours.. M0ar levy - 

GetZeeGold's picture



Just don't buy gold.....whatever you do.....don't buy gold.


These are not the droids you're looking for.

Supernova Born's picture

Do as central bankers say, not as they do.

mdtrader's picture

Europe is broken.  UK triple dip recession. BOE UK banks £25 billion captial shortfall.

Sandmann's picture

"Triple Dip Recession" ? You are clearly a numpty. Britain has a full-blown  D E P R E S S I O N but you have to get off Oxford Street to see it and look where the other 56 Million People live outside the London area. The economy TANKED after that Halfwit Osborne deliberately intensified the Depression so he could revive the corpse in time for the 2015 Election.......but he has simply suffocated what little breathig was going on.

As for £25 billion of bank capital that is for what ? To help them absorb yet more losses....we are only talking of Fraudulent Selling and LIBOR Scams which involve Fines to the Regulators - well let the Regulators lend it back under QE-Extended. In reality if this housing market is not turned into a transactions bazaar soon the impoosion will wipe out the equity base of the entire banking system.

Take a Continent - any one and tell us which is in great shape. Globalisation is what they call it - Contagion Everywhere......everything hypothecated and financialised.


Edward Fiatski's picture

All is going According to Plan. :)

Bri'ish £ has to become defunct, or at the very least sit at 1.15-1.2 to its major counterparts by the end of this decade in order... for the New World Order to take hold! /evil laugh

UberStateAgency's picture

Right Brother , ++good !

Our Takeover is speeding up and



Equilibrium - father's speech

Edward Fiatski's picture

A Most Excellent Speech. ++Good :)

This movie is a masterpiece in my book: it had me crying, cheering, often laughing hysterically with a tear of sorrow at some of the absurd situations that such a dystopian society could force upon its own people.

The soundtrack throughout the film is something out of this world on its own - I have both OST CDs.

Anasteus's picture

In fact, now they will have to impose levy even on secured deposits since as of this week very likely most of unsecured deposits have been converted to secured ones.

Ghordius's picture

and George "Halfwit" Osborne, Chancellor of the UK cabinet, seems hell bent in copying the US templates of Fannie Mae, Freddie Mac and the "National Homeownership Strategy" offering national guarantees to banks on high-loan-to-value loans and five-year interest free loans worth a fifth of a property's value to every homeowner

"Help to Buy". a sure thing, what can possibly go wrong?

falak pema's picture

in the wake of Cyprus waltzing mathilda blues, the posts are now all race to bottomish, no hope on climbing that hill again.

Sheeple Shepard's picture

"In reality if this housing market is not turned into a transactions bazaar soon the impoosion will wipe out the equity base of the entire banking system." 

Which is exactly why lil' Gideon is trying to reflate the housing market, the problem is its too damned expensive to buy a property as a proportion of earnings at current levels as it is, talk about flogging a dead horse. You might as well start buying DOW at 14559, they have passed the event horizon of sqeezing "joe public", and that has been the U.Ks only industry for about 30 years.

MeelionDollerBogus's picture

NUMPTY! Depressions are OUTLAWED, now we just call them quintiple-dip layered (let them eat) cake jobless recoveries!


(on boating accidents)

Sheeple Shepard's picture

Just thought i would drop this in


China and Brazil sign $30bn currency swap agreement

"China has been pushing for a more international role for its currency, the yuan. It has been trying to promote the yuan as an alternative to the US dollar as a global reserve currency."

Backed by gold?(rhetorical question)

new game's picture

this is HUGE news - faith in the dollar is waning; this is what will break the camels back.

petro dollar backed by a bully stick of 10,00 drones ready to lash out in desparation.

just imagine gas at $9/ gallon and inflation running at 20 percent and layoffs of the millions/month.

the future is becoming clear - one word - desparation...

drone ben - nice trade-in helicopter for drones-thanks for your consideration for my future...


didn't say fx value - have the faith baby-got faith?

Skin666's picture

Bye bye $$$$$$$$$$$$

Buy buy shiny shiny

Edward Fiatski's picture

Full-on assrape going on:

UK GDP YoY Q4 Final at 0.2% vs Exp 0.3% vs Prev 0.3% --
£ Current Account Q4 at -14.0B vs exp -12.5B and prev -15.1B (revised)
BoE says £25 bln capital shortfall in UK banks, Paging Troika... Paging Troika...

Have a nice day!! LOL

billybobtx's picture

Bank run, bitchez.

ParkAveFlasher's picture

I haven't had this much fun following current events since OJ Simpson ran from the po po.  Thanks, ZH.

Supernova Born's picture

OJ is now in prison.

Justice still some measure of justice.

ParkAveFlasher's picture

It's himself he couldn't evade.  He tried all his life to evade himself.  This is all similar futility.

BandGap's picture

So silver is getting crushed???

So many people are paying attention now, not sure the usual MO is going to get the powers that be to where they want to be, see?

GetZeeGold's picture



Welcome to the mind screw.

goldenbuddha454's picture

gold and silver won't really get "crushed" until the U.S. govt takes real measures to reduce the debt and deficits which will never, ever happen under this current bunch of politicians.  We won't see $17 silver ever again in our lifetimes.  JMHO

ghengis86's picture

And gold slumps and silver dumps...sheesh. What a clusterfuck of a 'market'

On the bright side, looks like we're having a sale today boys! Back up your trucks and stack up!

Mordenkainen's picture

You can thank me for it. I just bought yesterday. Infallible correlation between my buying and PMs dumping.

new game's picture

as keith sang t and a

for me g and a

returns are bubblish but not sellin

9mm fmj .5/rd - nice double

.22 cal from .03 to .06+ - nice double plus

shooters all up 25 percent plus plus depending.

best performing asset class with utility plus peace of mind.

tell me your story...

nmewn's picture

Your Krugmanism for the day is...

"For people like me, on the other hand, the economy is a social system, created by and for people. Money is a social contrivance and convenience that makes this social system work better — and should be adjusted, both in quantity and in characteristics, whenever there is compelling evidence that this would lead to better outcomes."

Need one say more?

The characteristics if fiat money is a social contrivance.

HD's picture

Krugman not only assumes those in power who are doing this "adjusting" know what the hell they're doing - but that they have the best interests of "the people" in mind.


css1971's picture

Well, he's basically right for the first part. The really big problem is that he and others like him believe they are smart enough that they are able to:

"and should be adjusted, both in quantity and in characteristics, whenever there is compelling evidence that this would lead to better outcomes."

The compelling evidence I've seen says he and his ilk are neither smart enough to define "better" nor smart enough to understand the monetary system such that they can engineer "better outcomes" consistently even if they were able to define "better".

As far as I can tell the closest definition to "better" they have is more for me and my backers, less for you and yours.

JDFX's picture

Hold short Euro , bitchez . This parties about to warm up !

fonzannoon's picture

Everybody into the dollar, where we fund our government 6 months at a time by printing money!

mammoth mo's picture

2 hours to Wapner


Of course tomorrow is a special show.  128 dollars a day for excellent drivers.  That will be a real special show.


2 hours to Wapner.

GetZeeGold's picture



Ten minutes to Wapner. We're definitely locked in this box with no TV.

mammoth mo's picture

Uncle Bernie,

Uncle Bernie,

Where is the TV?  Uncle Bernie always finds a TV.

virgilcaine's picture

Fed pumps money through the front door.. Russians remove it through the backdoor.

Flagit's picture

or your ribcage, if need be.

HD's picture

When dealing with Russian mobsters - the ribcage is one of your better options.

Going Loco's picture

Most likely candidate for actual bank runs is possibly Portugal or France but probably Spain simply because there are so many Brits and Germans there and it's much easier for them to run from local banks because most of them will already have accounts elsewhere - it takes an age to set up new bank accounts anywhere so the most liklely candidate for a run is a country where there are a lot of peple who already have accounts in other currency zones or in the one remaining "safe" country in the Eurozone. Not saying that running to a UK or German bank makes long-term sense, but if real panic starts Spain is the most likely place. Very easy to sit at a laptop and do an online transfer from Spain to UK. Not encouraging this behaviour, not fear-mongering, just discussing possibilities and probabilities here.

css1971's picture

You would only transfer your money to the UK if you had no idea what was going on. The UK is not a "safe" haven. It's simply the confiscation is more practiced.

Going Loco's picture

I never said the UK is a safe haven. I did not say that thing. I was sinply describing what is likely to happen. I don't think the average expat Brit does have any idea what is going on.

MeelionDollerBogus's picture

Bank runs do not imply running TO another bank, just From all the ones gone bad – maybe that’s all of them everywhere.

Capital flight implies a destination, bank RUN implies escaping from a fire, not looking for a smaller fire to run into.

Gold ‘n’ silver

falak pema's picture

vell veee vill zee ven ze banks open in Cypruzz...

Life vil never be ze same again in ze Euro zone; I promizzzzz...

Lets dance, Mutti, lets dance to the tune of Bechet playing : petite fleur...oh so fragile zeee good ole euro..; auf weider...zein??

Meanwhile in frenchy follies france Hollande rubs his hands as euro good for exports.

Yen Cross's picture

      Looks like reality is starting to set in.


Germany 10-Year 1.281 1.340 1.338 1.278 -0.059 -4.40% 11:56:07
Quinvarius's picture

When the dollar index gets near 84, you will probably see an intervention.  That is around the top of the rigged trading band.

toys for tits's picture

With the Fed's foot firmly pressing the accelerator, can we call it Thelma now or do we have to wait until it goes over the cliff?

BandGap's picture

We ARE over the cliff, but it's like a cartoon. We won't drop till the coyote looks down. Until then, smooth sailing.

Passage's picture

Reminder: No matter which offshore banking heaven you hide your money, just remember to keep them in USD accounts..