Daily Market Report 18/03/2013

Crisis in the euro zone reared its ugly head again, with the euro falling 1.2% against the pound overnight after an unprecedented levy on bank deposits in Cyprus threatened the country’s bailout.

Cypriot President Nicos Anastasiades met the demands of euro-area finance ministers to raise €5.8bn by levying a fee on every bank account in Cyprus, a form of involuntary tax imposed on every Cypriot. The news has already invoked scenes of panic in Cyprus with many residents queuing up at cash machines over the weekend to withdraw their funds. The measure will be voted upon in Parliament today.

As Cyprus only makes up 0.2% of total euro zone GDP, it is a surprise that the news has caused the euro to weaken so dramatically. However the reasoning behind the weakness could be attributed to fears that this extraordinary measure could become a template for larger countries in the euro zone that would also be looking to request a bailout. It is far too early to say if the euro will continue to weaken in the medium term but it will be interesting to see how the rest of Europe reacts to these measures bought into Cyprus.

Data on Friday revealed that the annualised rate of inflation rose to 2% in the US whilst the rate of inflation in the euro zone dropped to 1.8% opening the door for talk of a possible rate cut by the ECB.

After Mervyn King’s words of support for the pound last Thursday, focus will be on whether economic data this week will continue to prop up the pound. Clients should take note on inflation figures on Tuesday, the Budget and BoE minutes meeting on Wednesday and then retail sales figures on Thursday.

Key Announcements:

9.00am – EUR – Trade Balance (Jan): Previous figures were -€1.155bn.

10.00am – EUR – Trade Balance (Jan): Expected to fall to €3.4bn.

12.30pm – CAD – Foreign Portfolio Investment in Canadian Securities (Jan): Expected to rise to CA$7.85b.

14.00pm – USD – NAHB Housing Market Index (Mar): Expected to rise to 47.