Tuesday Morning Cheat Sheet: 3 Stories Moving Markets
The usual market tug of war played out in Asia on Tuesday. Ongoing concerns about the stability of the euro currency bloc, fueled by the developing situation in Cyprus, weighed heavily on investment decisions. In Japan, central bank governor Haruhiko Kuroda spoke before the nation’s lower house financial committee and articulated his intention to push down yields by buying medium- to long-term assets. The Nikkei closed the day down 0.60 percent, the Hang Seng edged up 0.27 percent, and the S&P/ASX 200 declined 0.80 percent.
The situation in Cyprus remained front and center in Europe. Germany’s DAX was off 0.12 percent, London’s FTSE 100 was off 0.12 percent, and the STOXX 50 index was off 0.62 percent.
U.S. futures at 8:40 a.m.: DJIA: +0.13%, S&P 500: +0.17%, NASDAQ: +0.25%.
Here are three stories to keep an eye on:
1) The world’s largest emerging markets are gearing up to establish a financial institution along the lines of the World Bank and International Monetary Fund. Leaders from the BRICS nations — Brazil, Russia, India, China, and South Africa — are meeting in South Africa today, and officials from all five nations say they intend to pursue the idea. The fund would be used to pool foreign-currency reserves and shield the economies from global financial shocks.
2) Standard & Poor’s cut its forecast for 2013 GDP growth in the euro zone on Tuesday. The agency’s previous forecast for a contraction of 0.1 percent for the year was revised to a contraction of 0.5 percent, reflecting the tremendously difficult financial situation that the region still faces.
3) The great change is that senior bondholders and depositors are unsure if their money is safe in certain euro-zone countries. “We now have a new type of rule and everyone within the euro zone has to sit down and see what that implies for their own finances,” Christopher Pissarides, an adviser to the Cypriot government, told Bloomberg’s “The Pulse.”
Before the controversial levy against bank deposits was proposed, and before the eleventh-hour decision to wind down Cyprus’s second-largest bank, EU finance ministers had left bank depositors and senior bondholders relatively unscathed as they bailed out major economies and financial systems. However, many see the treatment of Cyprus as the first step towards what could become a common practice in the EU. At the first signs of bailout negotiations, observers fear that depositors will make a run for their money and the bond market will see sharp sell-offs.
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