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Financial markets were generally weighed down by the escalating situation in Cyprus. The
DOW Jones dropped 90 points overnight and was followed by a broad based weakness in
Asian equities. The Euro is relatively steady after the news and is just hovering at around
the 1.29 level against the dollar. Nonetheless, it remains vulnerable to a deeper selloff
against all other major currencies. The European Central Bank has issued a March 25th deadline
for Cyprus to complete the negotiations with its international lenders on the bailout deal
or it would cut off the emergency liquidity assistance to its major banks. Cypriot MPs
are expected to meet to discuss a plan B as soon as possible.
The Cypriot central bank president said that the draft of the new bill related to "reorganization
and recovery of the Cypriot banking system". And, "this consolidation process will prevent
the risk of bank failures and protected in their entirety all insured deposits up to
the amount of 100,000." Also, it's reported that part of the package will include the
setting up of a "national solidarity fund" which nationalizes provident funds, with bonds
issued against future natural gas revenues. The Eurogroup chairman and Dutch Finance Minister
said in a statement that "the Eurogroup stands ready to discuss with the Cypriot authorities
a new draft proposal, which it expects the Cyprus authorities to present as rapidly as
possible". And he said that "the Eurogroup would subsequently, on the basis of a Troika
analysis that needs to be undertaken, be prepared to continue negotiations on an adjustment
program". S&P lowered Cyprus' rating to CCC, down from
CCC+, with a negative outlook and said that "given that the assets of Cyprus' indigenous
banking sector are more than 5 times GDP, we consider Cyprus' credit standing to be
inextricably linked to its banking system." And, "in the absence of a credible alternative
source of capital and fiscal financing, the risk of a disorderly credit event is rising."
The rating agency expects "over the next few days Cyprus and the Eurogroup or other partners
to reach an alternative agreement," Elsewhere the Canadian dollar was strong overnight
as Finance Minister Flaherty said that he would eliminate the country's deficit before
the next election in 2015. He projected that Canada will turn into surplus of 800 million
Canadian Dollars in the fiscal years of 2015/16. Spending growth is expected to average 2.1%
over the next five years, much lower than the average 4.9% since 2007. Revenue growth
is expected to be 4.6% per year, more than double the current pace.
In other news: New Bank of Japan governor Kuroda pledged again yesterday that he would
"do whatever he can to achieve the 2 percent price target at the earliest time possible."
Swiss National Bank governing board member Moser said that the share of SNB in international
foreign exchange volume never exceeded 1.5% on any day and thus, there was no significant
impact that would distort markets. The Philly Fed Manufacturing Index in the
US and Retail Sales in the UK are the major market-movers today along with any major developments
in the ongoing situation in Cyprus: for all the news affecting the forex market throughout
the day please join us at forexcurrencytradingonline.co.uk