Eurogroup comments sent wise money markets into freefall

The wise money markets panicked yesterday following the head of the eurogroup stating that Cyprus’s bailout could set a president for similar deals that involve bank depositors.Eurogroup comments sent wise money markets into freefallThe situation showed little sign of easing last night, with the Cypriot central bank saying that banks would now stay shut until Thursday.

Yesterday’s session was a game of two halves; initially investors had given a cautious green light to save the Med Island from economic failure.

However peripheral stocks and bonds gave back earlier gains when traders swiftly returned to safe haven assets after Jeroen Dijsselbloem warned the new method could be used in future bailouts.

“We should aim at a situation where we will never need to even consider direct recapitalisation. If we have even more instruments in terms of bail-in and how far we can go on bail-in, the need for direct recap will become smaller and smaller,” he stated.

“I think the approach needs to be, let’s deal with the banks within the banks first, before looking at public money or any other instrument coming from the public side. Banks should basically be able to save themselves, or at least restructure or recapitalise themselves as far as possible.”

This latest scheme differs from former bailouts where savers have been left unharmed.

In Cyprus insured depositors in distressed banks and all savers in other lenders kept their money, while those with uninsured sums in the failing banks took sizeable hits.

A bad bank is being formed and the remains of second-largest lender, the Popular Bank of Cyprus – or Laiki will be merged with the Bank of Cyprus.

Finally over to the US and consumer confidence is projected to drop back from a three-month high, demand for large-ticket items are expected to surge 3.95 in February, while the S&P/Case-Shiller Home Price index is estimated to show a year on year figure of 7.8 percent in January, which would signal the sharpest return to growth since June 2006.

The anticipated 3.9 percent drop in New Home Sales may have limited impact after marking the biggest advance since 1993 during January, while the Richmond Fed Manufacturing index is likely to hold firm at 6 in March.

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