EmailDon't stop the presses. Cyprus and the troika worked out an eleventh-hour deal for a bailout plan that will prevent the collapse of the island nation's banking system and its exit from the eurozone. Judging by the 11-point gain in the S&P 500 on Friday, the late agreement was not a surprise even though some of the terms of the agreement were.
The basic framework of the deal is as follows:
- There will be no levy on bank accounts below EUR 100,000
- Deposits over EUR 100,000 in the Popular Bank of Cyprus (aka "Laiki") and in the Bank of Cyprus will be frozen and subject to a levy of around 30%, according to reports
- Laiki will be wound down and accounts under EUR 100,000 will be transferred to the Bank of Cyprus
- Roughly EUR 4.2 bln will be contributed from this plan to the EUR 10 bln bailout package
There are plenty of opinions circulating this morning about the Cyprus deal. Some are good and some are bad. The only ones that matter at the moment, though, are those of the financial markets, which have expressed a "Cy" of relief that a worst-case scenario was avoided.
Foreign equity markets were mostly higher; the S&P futures are trading 0.4% above fair value; Treasuries are on the defensive; and gold prices are down 0.7%.
Overall, a case could be made that the reaction to the Cyprus plan is somewhat subdued. That could be a nod to the notion that some political and/or social backlash is to be expected as things get finalized. Then again, markets didn't necessarily overreact on the downside when the Cyprus situation presented itself last week.
For the time being, Cyprus will continue to dominate the business headlines and subsequent reports this week are apt to suggest the S&P 500 moved to new all-time highs in spite of it or was prevented from reaching new all-time highs because of it.
In other developments, Dell (DELL) is entertaining additional offers from Carl Icahn and Blackstone (BX); and the Senate passed its first budget in four years. The latter is encouraging, but what is lost in the optimistic headline is that there wasn't a single yes vote by a GOP member.
This will be a shortened week of trading, as the market will be closed on Friday in observance of Good Friday. It will still be a busy week of economic reporting, however, with durable orders, consumer confidence, new home sales, initial claims, the third estimate for Q4 GDP, and the personal income and spending reports on the docket.
