While Mohamed El-Erian, the chief executive of Pimco, the
world’s largest bond investor, said:

Quote
In Europe, it [the Cyprus bail-out] could well undermine the recent tranquil
behaviour of depositors and creditors in other vulnerable European economies
– in particular Greece, Italy, Portugal and Spain.

Despite assurances from European officials that Cyprus is ‘exceptional’ and
the measures are ‘unique’, this weekend’s actions have increased the risk
premium.

Joachim Fels, the chief economist at Morgan Stanley in London,
described the levy on bank deposits as:

Quote
A worrying precedent with potentially systemic consequences if depositors in
other periphery countries fear a similar treatment in the future.

06.58 European banks could suffer credit rating downgrades over the
turmoil in Cyprus, according to Moody’s. The ratings agency said the
decision is negative for depositors in Europe and marks a significant step
towards limiting systemic support for bank creditors in the region.

Credit ratings for banks across Europe could be hit by the Cyprus bailout,
according to Moody’s.

06.55 Jim Antos, a Hong Kong-based analyst at Mizuho Securities
Asia, has warned the move could bring about a profound shift in savers’
behaviour across Europe. He told Bloomberg:

Quote
From the social planning point of view and the idea of keeping depositor
confidence in general, this is a terrible precedent to set.

People in Europe are probably going to think hard about how much money they
should put in a tin can and bury in the back yard.

06.51 There are reports the Cypriot government will instate another bank
holiday on Tuesday
should today’s parliamentary vote fail to approve the
deal.

People queue to use an ATM machine outside of a Laiki Bank branch in
Cyprus. Many rushed to cooperative banks after learning that the terms of a
bailout deal includes a one-time levy on bank deposits.

06.47 While the Cyprus bailout is relatively small, the “levy
could have wide-ranging repercussions on eurozone bank deposits in other
peripheral countries,
despite Cyprus… being labelled as ‘unique'” Credit
Agricole
said. A political deadlock in Italy also weighed on euro
sentiment with doubts about talks aimed at forming a government, it added.

Quote
There is little to suggest a deal is in the offing with the risk skewed
towards protracted negotiations and fresh elections.

06.45 Although the bailout plan has not yet been voted through by the
Cypriot parliament, analysts predict market chaos on Monday.

David Baran, co-CEO of asset manager Symphony Partners, told Dow Jones
Newswires:

Quote
Even though the bailout of Cyprus (and subsequent levy on Cypriot bank
deposits) will be put to a vote, the situation could very well lead to a
selloff in the euro and a more risk-off investor stance globally.

But given the expectations of the new Bank of Japan leadership, the euro is
likely to fall more against the dollar than against the yen.

Japanese equities, despite their recent rise, are nowhere near their
all-time highs as are US stocks.

06.37 However David Cumming, Standard Life’s UK head of
equities, has told the BBC Radio 4’s Today programme, that he did not expect
there to be contagion as a result of the Cyprus deal. He added:

Quote
I don’t see the impact from this [in markets] lasting for more than a few days.

06.30 In the currency markets, investors fled to the US dollar, which
strengthened 0.7pc against a basket of the major world currencies, in favour
of the euro, which slid to a three-week low against the US currency of
$1.28888.

The euro is set to fall sharply against a basket of major global
currencies on Monday morning. Source: Bloomberg

06.17 Stocks and commodities fell sharply in Asia overnight, with the Nikkei
in Japan slumping 2.71pc and Hong Kong’s Hang Seng dropping 2.12pc.
European and US equity markets are all set to open down. FTSE 100 futures
are down 1.93pc, and elsewhere in Europe the CAC is forecast
to open down 0.74pc, the German DAX down 0.16pc,
Madrid’s IBEX down 0.56pc and the MIB in Milan down 0.32pc.
US markets are braced for a beating too. Dow Jones futures are down 1pc,
while the S&P 500 is set to open down 1.35pc from Friday’s
close.

Asian markets – the first to react to news of the bailout – fell
steeply overnight

06.00 Good morning. Investors across the world have been spooked by a radical
bailout plan
for Cyprus involving a raid on bank deposits held in
the nation’s banks, a plan Nicos Anastasiades, the island’s president, has
described as “painful” but “necessary”. The proposal to
impose an “up front one-off stability levy applicable to resident and
non-resident depositors” has sparked chaos in Cyprus, where politicians are
working to avoid a run on the banks after ATMs
were depleted
within hours of the announcement on Saturday morning,
and anger across the EU. The tax is planned as a 9.9pc raid on deposits of
more than €100,000 and 6.7pc on all other deposits.

The Cypriot bailout follows those for Greece, Portugal, Ireland and Spanish
banks, and it is the first one that dips into people’s savings to finance a
bailout. Analysts worry the move could roil international markets and
jeopardize Europe’s fragile economies.

Reports emerged on Sunday evening of eleventh-hour measures by the Cypriot
government – who are due to vote on the measures later today – to soften the
blow on smaller savers, involving a less punishing, 3pc levy on deposits
worth less than €100,000, and revising the charge on anything above that up
to 12.5pc.

Cyprus bailout: Investors spooked by radical bailout – live – Telegraph.co.uk
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