WSJ:European Stocks, Bonds, Euro Slide on Cyprus Bailout Plan
By Martin Essex
The euro, European stocks, Italian bonds and crude oil prices all fell sharply in early European trading Monday as investors fled from assets seen as particularly risky, while Cypriot leaders attempt to prevent a collapse of the country's financial sector and an exit from the euro zone.
By contrast, there was strong demand Monday for assets seen as safe havens, including the Japanese yen, German Bunds and gold.
"Reports that the bailout for Cyprus will contain conditions for a one-off 'tax' has sent risk aversion through the roof," said Jonathan Sudaria, a dealer at Capital Spreads.
"Investor sentiment was knocked lower in response to the weekend's controversial Cypriot bailout," said Sue Trinh, senior currency strategist at Royal Bank of Canada.
Just after the stock markets' opening, the FTSE 100 index was down 1.4% at 6397, the DAX was down 1.7% at 7908 and the CAC-40 was down 2.1% at 3765. The euro was trading at $1.2936, down from $1.3076 in late New York trading Friday. As Italian bond prices tumbled, the 10-year Italian yield was up 0.12 percentage point at 4.72% and Brent crude oil futures were down 1.0% at $108.67 a barrel.
Among the equity markets most affected, Italian stocks fell 2.2% on contagion fears, while Moscow stocks dropped 2.9% as much of the money in Cypriot banks is thought to be Russian. U.S. stock futures indicated declines of 0.6% to 1.0% when Wall Street opens.
Turning to safe-haven assets, strength in the Japanese yen sent the euro down to Y122.90 from Y124.60 late in New York Friday, German Bund futures were up 0.73 at 144.12, and the gold price was up $12 at $1604.50 an ounce.
"If European policymakers were looking for a way to undermine the public trust that underpins the foundation of any banking system they could not have done a better job," said Michael Hewson, senior market analyst at CMC Markets UK.
Looking ahead, the only data scheduled for Monday are euro-zone January trade figures and the U.S. NAHB housing market index.
Write to Martin Essex at martin.essex@dowjones.com or on Twitter @MartinEssexDJN
