Stocks Dive Deep Due To Cyprus Worries

The weekend has been rather miserable for financial markets globally. Asian stocks have reacted negatively on today’s opening, the Euro has fallen sharply and US index futures have contracted massively. The SGX Nifty was seen trading lower by more than 40 points this morning. The global situation seems highly unfavourable and a negative opening on the Indian markets can be considered certain for today.

So what’s causing this heavy downfall? Cyprus announced their bailout plans and these plans have been rather drastic. Some of the measures in the plan have caused a stir in global financial markets because of their dramatic nature. Under the bailout plan, Cyprus would sell government assets, raise corporate tax rates and impose a tax on interest earned in banks. The real bomb is the plan of a one-off levy on bank deposits in exchange for equity in banks. Overall, this deal would help provide Cyprus 10 billion euros to shore up finances.

The move has caused this drastic dip in markets as this would be the first time that private citizens’ bank deposits would be tapped. Commenting on the nature of the deal, Morgan Stanley said the introduction of the levy ‘seems to have broken another taboo’. Given this move, the question of what can be tapped looms over the mind.

Where does this put the general expert opinion of a possible rate cut on March 19? The markets have certainly been nervous due to the hopes, and thus underlying uncertainty, of a probable rate cut. Trading was anyway expected to be range-bound and directionless. However, these domestic worries will be sidelined massively as Cyprus takes centre-stage.

Asia has opened very low today. The Nikkei 225, Hang Seng and Shanghai Composite are currently trading lower by 2.06%, 2.01% and 0.58% respectively. Markets are showing extreme amounts of weakness. The negative trend is expected to loom over the markets in the near-term.