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Euro, Stocks Fall as U.S., German Bonds Advance on Cyprus

*from www.bloomberg.com, Mar. 18, 2013 (To view original article click here.)

Take Away #1: The euro weakened to its lowest level this year, while stocks and commodities slipped, as the levy on Cyprus’s bank savings renewed concern about Europe’s debt crisis.

Key Facts and Figures:

  • German two-year note yields dropped to as low as minus 0.003% and 10-year Treasury yields reached a two-week low.
  • U.S. Treasuries fell as gold rose.
  • The euro sank 1.1% to $1.2930 at 4 p.m. in New York.
  • The MSCI All-Country World Index (MXWD) lost 1%, retreating from its highest level since June 2008.
  • The Stoxx Europe 600 Index fell 0.2%, trimming a plunge of 1.2%.
  • The S&P 500 Index retreated for a second day, losing 0.6% after dropping 1% earlier.
  • Copper tumbled more than 2% and gold rose almost 1%.

Take Away #2: Bank creditworthiness deteriorated as Moody’s Investors Service said today the Cypriot bank levy is negative for bank depositors across Europe.

Key Facts and Figures:

  • Banks in Cyprus will be closed until March 21.
  • Finance ministers in the euro area reached an agreement on March 16 forcing depositors to share in the cost of the latest bailout.
  • “EU still doesn’t have a good way of dealing with the periodic banking crisis that they have” says USAA Investments money manager, Bernie Williams.

Take Away #3: Cypriot lawmakers will meet tomorrow to ratify a levy to raise 5.8 billion euros ($7.6 billion) as a part of a bailout.

Key Facts and Figures:

  • The bailout is aimed at preventing a financial collapse and a possible exit from the euro area.
  • The meeting was delayed from today in order to examine changes to legislation.
  • Equity markets were closed in Cyprus and Greece for a scheduled bank holiday today.

Take Away #4: After the U.S. markets closed, European officials said Cyprus can ease the terms of the levies on small depositors while maintaining its target.

Key Facts and Figures:

  • Cypriot banks had 68.4 billion euros from clients other than banks at the end of January.
  • Of that, 21 billion euros, or 31%, were from clients outside the EU area.
  • 63% were from domestic depositors.
  • 7% were from other nations within the euro region.

Take Away #5: The euro slid as additional yield on Bonds widened.

Key Facts and Figures:

  • The euro slid as much as 1.5% against the dollar to $1.2882, its weakest since Dec. 10, before paring its decline.
  • The euro weakened against all 16 major counterparts and was 1.1% lower against the yen as Japan’s currency strengthened.
  • The additional yield investors demand to hold Spain’s 10-year securities instead of benchmark German bunds widened nine basis points to 356.
  • Portugal’s 10-year yield spread to similar maturity bunds widened to as much as 486 basis points today, the most in two weeks.
  • U.K., Finnish, and French securities also rallied.
  • Austrian 10-year yields fell to a record as investors sought haven assets amid concerns the levy would spark a run on Cyprus’s banks.

Take Away #6: Systemic risk rises as the market contemplates the read-through of breaching the sanctity of deposits.

Key Facts and Figures:

  • Rates on Portuguese debt due October 2023 rose as much as 30 basis points to 6.25%, only the biggest increase since Feb. 26.
  • Spanish yields rose 20 basis points on Feb. 26.
  • The yield on Italy’s 10-year bonds added four basis points today.
  • The yield on U.S. 10-year Treasuries slid four basis points to 1.95%.

Take Away #7: Contagion fears could spread through investors and encourage depositors in the European periphery to move their funds to a safer place.

Key Facts and Figures:

  • This is essentially a “bail-in of depositors and sets a dangerous precedent”.
  • The cost of insuring against default by banks rose the most since Feb. 26.
  • The Markit iTraxx Financial Index of credit default swaps on 25 banks and insurers jumped 15 basis points to 158 as of 11:30 a.m. in London.
  • Italian and Spanish lenders were the worst performers.
  • The Stoxx Europe 600 Index fell 0.2%.
  • Banks and Insurers led losses.
  • UniCredit SpA, Societe Generale SA, and Barclays Plc dropped more than 3%.
  • Marks & Spencer Group Plc rallied 6.9% in London after the Sunday Times reported the Qatar Investment Authority is considering an 8 billion-pound takeover.

Take Away #8: The S&P 500 declined for a second day after rising within two points of its 2007 record.

Key Facts and Figures:

  • Citigroup Inc. and JPMorgan Chase & Co. lost more than 1%.
  • Nine of 10 groups in the S&P 500 fell with Boeing Co., Walt Disney Co. and Cisco Systems dropping more than 1.2% for the biggest declines in the Dow.
  • Schlumberger Ltd. retreated 3.9% after saying North American activity was below estimates.
  • Carnival Corp. declined amid analyst downgrades.
  • Apple Inc. rallied 2.7% extending its three-day advance to 6.4%.
  • Apple poised to boost its dividend by more than half, likely lifting its quarterly dividend by 56% to $4.14 a share for an annual payout of $15.7 billion.

Take Away #9: Even after U.S. stocks more than doubled in the four-year bull market, S&P 500 companies are cheaper than at any record high since 1980.

Key Facts and Figures:

  • The S&P 500 rose to within 1% of its high last week gaining 131% from its lows.
  • The index trades at 15.4 times reported profit, below the average 19.9 reached in bull markets since 1962.
  • The Dow jones Industrial Average erased losses from the financial crisis on March 5 and has added 11% this year.
  • While individuals added almost $20 billion to U.S. stock funds this year, the amount is just 3.5% of the withdrawals since 2007.
  • For bulls, the absence of private buyers shows there’s plenty of money to keep the rally going.
  • For bears the pessimism means the rally is too dependent on Fed stimulus.

Take Away #10: Pullbacks right now are viewed as investable as there are many investors in the U.S. looking for pullbacks to add to money.

Key Facts and Figures:

  • The fundamental underpinnings of our economy remain robust enough to offset fears of what’s happening in the euro zone, says Timothy Hoyle of Radnor.
  • Traders are placing a record number of bets that U.S. stock-market swings will increase.

Take Away #11: Traders are placing a record number of bets that the U.S. stock-market swings will increase after a six-year low in the VIX.

Key Facts and Figures:

  • The recent six-year low in the VIX fueled speculation that volatility has fallen too far, too fast.
  • The shares outstanding for the iPath S&P 500 VIX Short-Term Futures ETN, has climbed 95% to an all-time high of 61.9 million this year.
  • The total ProShares ultra VIX Short-Term Futures is up 10-fold to 39.9 million last week.
  • The VIX jumped 18% to 13.36 today after falling to 11.3 this year through last week.

Take Away #12: Commodities drop while gold rose.

Key Facts and Figures:

  • The S&P GSCI gauge of 24 commodities dropped 0.3%.
  • Copper fell as much as 2.7% to $7,545.75 a metric ton.
  • Gold for immediate delivery rose as much as 1.2% to $1,611.32 an ounce.
  • West Texas Intermediate oil added 0.3% to $93.74 a barrel.
  • The MSCI Emerging Markets Index (MXEF) fell 1.1% to the lowest this year.
  • Russia’s Micex index tumbled, dropping 2.2%.
  • Moody’s Investor Service said Russian corporate deposits in Cyprus may total $19 billion.
  • The ruble weakened 0.8% against the dollar.
  • The Hang Seng China Enterprises index tumbled 2.1% as JPMorgan downgraded the nation’s shares to underweight.
  • Benchmark gauges in Taiwan, the Philippines, Poland, and South Korea fell at least 0.9%.

*To view original article from www.bloomberg.com click here.

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