BLBG:Euro, Stocks Drops; Gold, German Bonds Rally on Cyprus
The euro weakened to its lowest level this year, while stocks and commodities slumped, as an unprecedented levy on Cyprus’s bank savings threatened to throw Europe back into crisis. German two-year note yields dropped below zero as Spanish and Italian borrowing costs jumped.
The 17-nation shared currency sank 0.8 percent to $1.2966 at 9:45 a.m. in London. The MSCI All-Country World Index lost 0.8 percent, retreating from the highest level since June 2008. The Stoxx Europe 600 Index slid 0.6 percent and Standard & Poor’s 500 Index futures dropped 0.8 percent. Copper tumbled 1.9 percent and gold rose 0.8 percent. Germany’s note yields fell to as low as minus 0.003 percent. Spain’s 10-year rate climbed 11 basis points to 5.03 percent and the yield on similar-maturity Portuguese bonds rose 23 basis points to 6.18 percent.
Finance ministers in the euro area reached an agreement on March 16 forcing depositors in Cypriot banks to share in the cost of the latest bailout. Bank creditworthiness deteriorated the most since inclusive Italian elections three weeks ago as Moody’s Investors Service said today the Cypriot levy is negative for bank depositors across Europe. Bill Gross at Pacific Investment Management Co. said it moves “risk-on” trades to the back seat.
“This creates a precedent and is a bit scary,” said Matthieu Giuliani, who helps oversee $5.3 billion as a fund manager at Banque Palatine SA in Paris. “It hurts the market. But this is case specific to Cyprus. I don’t see Germany or the EU imposing such a thing on Spain or Italy. It would create panic in the banking system.”
Cypriot Vote
Cypriot lawmakers are scheduled to vote today in Nicosia to ratify the levy to raise 5.8 billion euros ($7.6 billion) as part of a bailout aimed at preventing a financial collapse and a possible exit from the euro area.
The euro slid as much as 1.5 percent against the dollar to $1.2882, its weakest level since Dec. 10, before paring its decline. It was 1.2 percent lower against the yen at 123.07 as Japan’s currency strengthened against all its 16 major peers.
The additional yield investors demand to hold Spain’s 10- year securities instead of benchmark German bunds widened 16 basis points to 363 basis points. Portugal’s 10-year yield spread to similar-maturity bunds widened to as much as 486 basis points today, the most since March 5.
While the rate on Portuguese debt due October 2023 rose as much as 30 basis points to 6.25 percent, that’s only the biggest increase since Feb. 26, when it jumped 48 basis points after the Italian election.
“The approach of applying haircuts to bank deposits in the Cypriot bailout is driving credit spreads substantially wider,” Greg Venizelos, a fixed-income strategist at BNP Paribas SA in London, wrote today in a report. “Systemic risk has risen as the market contemplates the read-through of breaching the sanctity of deposits.”
The yield on U.S. 10-year Treasuries slid four basis points to 1.95 percent. Japan’s 10-year bond yield fell 3.5 basis points to 0.585 percent, matching the lowest since 2003.
Default Risk
The cost of insuring against default by banks rose the most since Feb. 26, with the Markit iTraxx Financial Index of credit- default swaps on 25 banks and insurers jumping 12 basis points. Italian and Spanish lenders were the worst performers.
“More contagion fears will spread through investors and it will encourage depositors in the European periphery to move their funds to a safer place, either under the pillow or to Germany,” said Mark Bayley, a Sydney-based credit strategist with advisory company Aquasia Ltd. “This is essentially a bail- in of depositors and sets a dangerous precedent.”
The Stoxx 600 declined for a second day as banks and insurers led losses. UniCredit SpA, Italy’s biggest bank, France’s Societe Generale SA and Spain’s Banco Bilbao Vizcaya Argentaria SA dropped more than 3.5 percent. Marks & Spencer Group Plc, the U.K.’s largest clothing retailer, rallied 7.2 percent in London trading after the Sunday Times reported that the Qatar Investment Authority is considering an 8 billion-pound ($12 billion) takeover.
The decline in S&P 500 futures indicated the U.S. gauge will extend the 0.2 percent drop recorded on March 15.
Gold Climbs
The S&P GSCI gauge of 24 commodities dropped 1 percent, the biggest decline since Feb. 21. Copper fell as much as 2.7 percent to $7,545 a metric ton, the lowest price since Aug. 20 and biggest decline since June 21. Gold rose as much as 1.1 percent to $1,608.60 an ounce, the highest since Feb. 27. West Texas Intermediate oil dropped 1.2 percent to $92.35 a barrel.
The MSCI Emerging Markets Index (MXEF) fell 1.1 percent to the lowest this year. Russia’s Micex Index tumbled the most in four months, dropping 2.5 percent. Moody’s said Russian corporate deposits in Cyprus may total $19 billion.
The Hang Seng China Enterprises Index tumbled 2.1 percent, extending declines from this year’s peak to 12 percent as slowing growth and accelerating inflation spurred JPMorgan Chase & Co. to downgrade the nation’s shares to underweight. Benchmark gauges in Taiwan, the Philippines, Poland and South Korea fell at least 0.9 percent.
To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Adam Haigh in Sydney at ahaigh1@bloomberg.net
To contact the editor responsible for this story: Stuart Wallace at Swallace6@bloomberg.net;
