The euro weakened to its lowest level this year, while stocks and commodities slipped, as an unprecedented levy on Cyprus’s bank savings renewed concern about Europe’s debt crisis. German two-year note yields dropped below zero and rates on U.S. Treasuries fell as gold rose.
The 17-nation shared currency sank 1.1 percent to $1.2930 at 4 p.m. in New York. The MSCI All-Country World Index (MXWD) lost 1 percent, retreating from the highest level since June 2008. The Stoxx Europe 600 Index fell 0.2 percent, trimming a plunge of 1.2 percent. The Standard & Poor’s 500 Index retreated for a second day, losing 0.6 percent after dropping 1 percent earlier. Copper tumbled more than 2 percent and gold rose almost 1 percent. Germany’s note yields fell to as low as minus 0.003 percent and 10-year Treasury yields reached a two-week low.
Banks in Cyprus will be closed until March 21 after finance ministers in the euro area reached an agreement on March 16 forcing depositors to share in the cost of the latest bailout. Bank creditworthiness deteriorated the most since inconclusive 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.
“It tells me that the EU still doesn’t have a good way of dealing with the periodic banking crisis that they have,” Bernie Williams, a San Antonio-based money manager at USAA Investments, which oversees over $54 billion, said in a phone interview. “It does put a lot of angst and anxiety.”
Cypriot lawmakers will meet tomorrow to ratify a 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 meeting was delayed from today in order to examine changes to legislation, Speaker Yiannakis Omirou told reporters in Nicosia, in comments broadcast on state-run CYBC. Banks will remain closed tomorrow and March 20, a government official said, asking not to be identified.
Equity markets were closed in Cyprus and Greece for a scheduled bank holiday today. Cypriot banks will remain shut tomorrow and March 20, a government official said, asking not to be identified.
After U.S. markets closed, European officials said Cyprus can ease the terms of the levies on small depositors while maintaining its target. Cypriot banks had 68.4 billion euros in deposits from clients other than banks at the end of January. Of that, 21 billion euros, or 31 percent, were from clients outside the EU area, 63 percent were from domestic depositors, and 7 percent were from other nations within the euro region, according to data from the Central Bank of Cyprus.
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 weakened against all 16 major counterparts and was 1.1 percent lower against the yen 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 nine basis points to 356 basis points. 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 and Austrian 10-year yields fell to a record as investors sought haven assets amid concern the levy would spark a run on Cyprus’s banks. Italian bonds pared a decline on speculation contagion will be contained.
“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.”
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 climbed 48 basis points after the Italian election failed to produce a clear winner. Spanish yields rose 20 basis points on Feb. 26. The yield on Italy’s 10- year bonds added four basis points today, trimming a jump of as much as 21 points, compared with a 41 basis-point jump three weeks ago.
“So far it seems like it’s fairly calm and if it can stay that way that’s good,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “The markets are not too scared. It is a big deal but everything depends on what happens within the next couple of days. If we get a deal then it should calm down very swiftly. That’s what I think is going to happen.”
The yield on U.S. 10-year Treasuries slid four basis points to 1.95 percent.
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 15 basis points to 158 as of 11:30 a.m. in London. 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 Europe 600 Index fell 0.2 percent, paring a plunge of as much as 1.2 percent. Banks and insurers led losses. UniCredit SpA, Italy’s biggest bank, France’s Societe Generale SA and Barclays Plc dropped more than 3 percent. Marks & Spencer Group Plc, the U.K.’s largest clothing retailer, rallied 6.9 percent in London trading after the Sunday Times reported that the Qatar Investment Authority is considering an 8 billion-pound ($12 billion) takeover.
The S&P 500 declined for a second day after rising to within two points of its 2007 record last week. Citigroup Inc. and JPMorgan Chase & Co. lost more than 1 percent to pace declines in financial shares, which led the equity market’s losses.
Nine of 10 groups in the S&P 500 fell with Boeing Co., Walt Disney Co. and Cisco Systems Inc. dropping more than 1.2 percent for the biggest declines in the Dow. Schlumberger Ltd. retreated 3.9 percent after saying North American activity was below estimates. Carnival Corp. declined amid analyst downgrades.
Apple Inc. rallied 2.7 percent, extending its three-day advance to 6.4 percent. Apple is poised to boost its dividend by more than half, according to analysts surveyed by Bloomberg, providing investors hit by a share slump with one of the highest yields in the U.S. technology industry. Apple will probably lift its quarterly dividend by 56 percent to $4.14 a share for an annual payout of $15.7 billion, according to the average estimate of six analysts.
The S&P 500 rose to within 1 percent of its high last week, gaining 131 percent from its lows. The index trades at 15.4 times reported profit, below the average 19.9 reached in bull markets since 1962, according to data compiled by Bloomberg. The Dow Jones Industrial Average (INDU) erased all losses from the financial crisis on March 5 and has added 11 percent this year.
While individuals added almost $20 billion to U.S. stock funds this year, the amount is just 3.5 percent of the withdrawals since 2007 and compares with $44 billion placed with fixed-income managers in 2013, according to the Investment Company Institute. For bulls, the absence of private buyers shows there’s plenty of money to keep the rally going. Bears say the pessimism means the rally is too dependent on Federal Reserve stimulus and will fizzle once central bank support ebbs.
“There’s so many investors in the U.S. that are looking for pullbacks to add to this market, to add money,” Timothy Hoyle, director of research and fund manager at Radnor, Pennsylvania- based Haverford Investments, which oversees $6 billion, said in a phone interview. “Pullbacks right now are viewed as investable pullbacks, and that’s what we had this morning. The fundamental underpinnings of our economy remain robust enough to offset the fears of what’s happening in the euro zone.”
Traders are placing a record number of bets that U.S. stock-market swings will increase after a six-year low in the Chicago Board Options Exchange Volatility Index fueled speculation volatility has fallen too far, too fast.
The shares outstanding for the iPath S&P 500 VIX Short-Term Futures ETN, the most-active security that tracks changes in VIX futures, has climbed 95 percent to an all-time high of 61.9 million this year, data compiled by Bloomberg show. The total for the ProShares Ultra VIX Short-Term Futures is up 10-fold to 39.9 million last week, data compiled by Bloomberg show. The VIX jumped 18 percent to 13.36 today after falling 37 percent to 11.3 this year through last week.
The S&P GSCI gauge of 24 commodities dropped 0.3 percent. Copper fell as much as 2.7 percent to $7,545.75 a metric ton. Gold for immediate delivery rose as much as 1.2 percent to $1,611.32 an ounce, the highest since Feb. 27. West Texas Intermediate oil added 0.3 percent to $93.74 a barrel, erasing a decline of as much as 1.8 percent.
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 2.2 percent. Moody’s Investor Service said Russian corporate deposits in Cyprus may total $19 billion. The ruble weakened 0.8 percent against the dollar.
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 to downgrade the nation’s shares to underweight. Benchmark gauges in Taiwan, the Philippines, Poland and South Korea fell at least 0.9 percent.
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