EmailThe major indices took a tumble yesterday, reportedly on concerns about the situation in Cyprus. Judging by things this morning, though, we're not sure that was entirely the case.
A headline grabbing attention this morning is that the finance minister for Cyprus left Russia without a major deal being struck to help the island nation. That means things are worse today, not better, insomuch as they relate to Cyprus's fate, which could be sealed on Monday if its parliament doesn't figure out an acceptable Plan C.
Cyprus's position in the eurozone hangs in the balance with the ECB warning it will close the liquidity spigot to its banks if an agreement is not reached by Monday.
To say the least, the uncertainty factor surrounding Cyprus is very high, and yet the euro is up 0.4% against the dollar today and European bond yields are mostly lower. Things could change of course, but that strength doesn't exactly connote the same level of angst about the Cyprus situation being conveyed in the headlines.
Perhaps, then, yesterday's selling had more to do with growing attention to the disappointing earnings reports and guidance from FedEx (FDX) and Oracle (ORCL) seen the past two sessions. Either way, the lower-than-average trading volume at the NYSE on Thursday didn't fit the mold of a true fear trade linked to the Cyprus situation.
The S&P futures are trading 0.2% above fair value this morning, too, bolstered by better-than-expected earnings reports and/or guidance from the likes of Nike (NKE), Tiffany & Co. (TIF), Micron (MU), and Darden Restaurants (DRI).
As an aside (because the market has shown an inclination to put such things aside), earnings results for Nike, Micron, and Darden were all lower than the year-ago period.
There are no economic releases in the US today, although the IFO Business Climate survey out of Germany proved to be a disappointment, slipping to 106.7 in March from 107.4 in February.
Cyprus will undoubtedly be the focal point today for the business media and it will keep the market's attention. However, the gains in the euro this morning combined with the slight losses in the 10-year note and the weakness in gold prices suggest there is an underlying sense that a worst-case scenario will be avoided.
The market would understandably think as much given the bailout experience with Greece, Mario Draghi's infamous pledge to do whatever it takes to defend the euro, and other stop-gap measures agreed to at the eleventh hour by policymakers in recent years.
Cyprus is insignificant in the grand scheme of things from an economic standpoint, yet the risk is there that Cyprus snowballs into something bigger for the financial markets next week if the stop-gap isn't filled this weekend as expected.
