With the bank’s assets at about 175 percent of Cyprus’ GDP and advances to customers equivalent to over 80 percent of its asset base (before reserves) it is pretty safe to say “this isn’t your father’s bank!” You decide.
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Hard to to discern the cause of the increase in chop in U.S. equities. Cyprus? Overbought? Earnings worry? Strong dollar’s impact on earnings (see Oracle’s release)?
Here’s what we said on March 4th:
No doubt the stronger dollar will be headwind for profits, but earnings season is a month out.
Here’s what Oracle said on their earnings call yesterday:
Now to the numbers in Q3. Currency movements reduced new license revenue growth by 2%, and total revenues by 1%, and net income by 2% and earnings per share by approximately $0.01.
We don’t know the exact cause of the air pocket but probably a combo of all the above.
Nevertheless, we’re watching the 21-day EMA on the SPY like a hawk. It had a nice bounce off this level today and now becomes the line in the sand.
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Choppy action into a weak close. The S&P500 ETF (SPY) bounced off the 21-day EMA, which is now key support.
Nike beats, up 8 percent in AH, with North America revenues strong and China weak.
The company’s [Nike] quarterly results show Nike’s strategy is paying off in North America, but it’s still facing weakness in China. North American revenue, which accounts for 40 percent of revenue, rose 18 percent to $2.55 billion. Revenue in China, which accounts for 10 percent of revenue, was down 9 percent to $635 million.
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The government of Cyprus is holding a series of crisis meetings, as it tries to avoid bankruptcy.
MPs rejected a controversial bill to dip into peoples savings. Without it, the banking sector will collapse, and the country could even be forced to leave the euro.
Al Jazeera’s Peter Sharp reports from capital Nicosia.
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FedEx down big on earnings miss. Watch to see if this one can recover. Our plan has been to lighten up on equities going into earnings as the big run has made stocks vulnerable to a correction around earnings, which, by the way, we don’t think will be blockbuster.
“Our lower-than-expected results for the quarter and reduced full-year earnings outlook were driven by third quarter international revenues declining approximately $100 million versus our guidance primarily due to accelerating customer preference for lower-yielding international services, lower rate per pound and weight per shipment,” said Alan B. Graf Jr., FedEx Corp. executive vice president and chief financial officer. “We expect these international revenue trends to continue. We have other actions under way beyond those already included in our profit improvement program. Some of these additional actions may involve temporarily or permanently grounding aircraft, which could result in asset impairment or other charges in future periods.”
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If NorKo the source, wouldn’t this represent a significant escalation of tensions? Markets not reacting.
South Korean broadcasters/banks suffer cyber attack
Computer networks of several major South Korea broadcasters and banks have been paralyzed. Police and government agencies are investigating what appears to be a cyberattack.
The shutdowns in Seoul on Wednesday come days after North Korea blamed South Korea and the United States for cyberattacks that temporarily shut down websites in Pyongyang. Tensions between the countries are high over the North’s nuclear ambitions.
Officials at the two public broadcasters KBS and MBC said that all computers at their companies shut down at 2pm. (6pm NZT).
The officials declined to give their names, saying they were not authorized to speak media.
YTN cable news channel reported the company’s internal computer network was completely paralyzed.
– AP
Keep it on your radar!
“Just when you think they’ve hit bottom, they keep digging.”
These were the words of the U.S. ambassador to Bulgaria spoken to us during the country’s staccato political ejaculations which eventually drove the country into hyperinflation in the late 1990’s. It was on the same trip to Sophia that a senior central bank official looked us in the eye and said they would not let the government default. The government had lost the confidence of the markets to meet its debt obligations even though it had an independent central bank.
Bulgaria faced a choice to either default or monetize its bond maturities. Unlike Russia who chose default over hyperinflation in 1998, Bulgaria monetized the debt payments causing one of the worst hyperinflations in post-war history. The economic chaos eventually resulted in a currency board FX/monetary regime. This is a lesson to the modern monetary theorists who believe governments with independent central banks can’t default.
History shows when governments get into trouble with their local currency debt they have to make a political choice on who will take the pain. The Russians chose to inflict the pain on David Tepper, his hedge fund buddies, and rest of the creditors, many of whom were foreigners. Bulgaria chose the domestic population through hyperinflation.
Fast forward to Cyprus 2013 who today rejected the depositor bail-in scheme as part of its EU bail-out. This is a game changer. Just when we thought Cyprus may have hit bottom, they keep digging.
We hope the government has a Plan B — i.e., Russian bail-out, etc. — as the 6-10 deposit tax will look golden to depositors if Cyprus decides to/is forced out of the Eurozone. The EU could also cave and soften up the terms of the bailout, but wouldn’t this increase the political contagion to other countries?
If Greece, for example, sees Cyprus voting down unpalatable measures forcing a Troika retreat and softening of terms, wouldn’t they try and do the same?
The Cyprus rejection of the bail-out deal really complicates matters and significantly increases uncertainty.
How and when will they get the banks back open? Could this be the tipping point where Germany and the rest of northern Europe’s commitment to the Euro experiment begins to falter?
Will a Plan B resemble that of Argentina’s forced conversion of confiscated bank deposits into BONEX during 1980’s?
BONEX– Government bonds issued in the 1980’s and early 1990’s. The 1989 issue was used to compensate for confiscated bank deposits. Although BONEX bonds traded as low as 20-25% of par value, they generally enjoyed a good reputation and were all paid off. Many were purchased by foreign investors at discounted value, and then used (at full value) to acquire privatized public companies.
– Argentina U.S. Embassy
The financial resources needed to solve Cyprus are so small one would think the powers that be will not let the country fall into the abyss and increase the risk of taking much of Europe with it. In other words, Cyprus is too small to fail.
This does raise the question, however, is Cyprus, like Lehman, the problem or just the symptom of larger issues? If not Lehman, who? If not now, when?
Tough to currently see the path to a decent outcome now and have no idea where this is going. Does feel like more turbulence coming. We’ve buckled up.
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Caution lights still flashing.
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Stratfor Europe Analyst Adriano Bosoni discusses the controversial Cypriot bailout proposal and its effects beyond the European Union.
For more analysis, visit: http://www.Stratfor.com
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Global Macro Monitor 