Morning Coffee Break - Friday March 22
U.S. equity markets are pointing to higher open on the first day of the week of a short week. All three U.S. indexes are in the green on a Cyprus last minute bailout plan that was approved by European Union Finance Ministers.
The plan is good news to the markets after a volatile market last week that barely broke even for the week.
The solution does not come without pain. In fact the solution is pushing the envelope and not seen in modern times. Although depositors below 100k in euros will be protected by the government moving their accounts in whole to the Bank of Cyprus from the failing bank of Laiki. However, that’s where the good news ends and the pain begins.
What is happening in this solution is the bank’s equity will be wiped out as expected along with the General Bond holders as well as most of the Senior Preferred Bond Holders and bank deposits of 100k or more can see losses of 30-70% loss of their deposits.
The taking of depositors’ moneys to bailout the bank is the first time in modem financial times can have serious ripple effects throughout the Euro Zone and as depositors everywhere rethink the safety of a deposit account.
The Pain is not limited to the Euro Zone as Cyprus banks are made of nearly 20% of Russian and Russian Business depositors. This morning after the news of the bailout plan Prime Minister Medvedev was quoted as saying “The stealing of what has already been stolen continues”.
U.S. Economic Reports On Deck
It's a busy week for economic data but no reports are schedule today. Beware that Friday remains a busy economic data day but markets will be closed due to Good Friday.
Morning Coffee Break's Current Benchmarks
S&P 500 futures are higher currently at 1556.89
EUR/USD ticked higher to 1.2957.
U.S.10-year Treasury bond yields are at 1.97%
Gold ticked lower by -0.18% to $1,595.00
WTI Crude Oil is higher by 0.79 to $94.53
Commodities
Commodity prices react to the Cyprus bailout news with WTI Crude Oil rising by 0.79 to $94.53 per barrel. Gold prices moving lower below the $1,600 level to $1,595 range as the worst scenario in Cyprus for now has been taken off the table. Copper’s price action continue to be pushed around the outlook in China.
Currencies Markets
The biggest reaction to the Cyprus news could have been seen in the currency markets especially in the euro. The euro pushed above the 1.30 level during the overnight and then began to retract as traders realize the Cyprus may have taken Armageddon off the table but Cyprus and the euro zone members are still in for tough times. More importantly this the first time depositors are on the hook for the bailout and this move could have a big impact moving forward to dealing with bailouts.
Morning Coffee Break Earnings Watch
Our watch list of before the bell earnings
After the bell earnings to watch for
Morning Coffee Break's Stock Pre-Market Stock Watch
Dell (DELL, quote) announced this morning is evaluating takeover proposals from Blackstone Group (BX, quote) and investor Carl Icahn. The board will need to determined if any of the other proposals are better than $24.4 billion deal headed by CEO Michael Dell. Reuters is reporting that Icahn's offer is $15 per share for 58% of Dell and Blackstone's offer more than $14.25 per share. Keep in mind the current deal is for $13.65 per share.
Morning Coffee Break' Bottom Line
We are off the highs in the futures from when Cyprus announced the bailout deal and many analysts are suggesting that the Cyprus rally will be short lived and from what I’m seeing in the market as we approach the open seems to be the right track of thinking. Watch the banks and the Currency Shares Euro Trust (FXE, quote) ETF for signs of the U.S. to reverse.
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