Dijsselbloem Creates Chaos In Global Markets

The markets yesterday did open on a positive note, as we had expected. This was due to positive developments on the Cyprus bailout fund where reports were indicative of a plan being laid out to get access to the USD 10 billion from the Troika (the EU, ECB and the IMF). The trend continued to hover in the markets as trading took place in a range-bound manner. However, post noon, the markets saw a sudden drop. European stocks crumbled due to the details of the Cyprus deal and dragged the markets down to yet another day of negative closing. Considering that these developments have weighed on global markets and the fact that Asia has been weak since today’s opening, Indian markets are likely to follow suit.

As part of the deal reached by Cyprus to get access to bailout funds, Cyprus agreed to restructure two of the largest banks. Moreover, depositors with more than 100000 euros will be hit by an unprecedented deposit tax. Post this announcement, Jeroen Dijsselbloem, the Chairman of the Eurogroup of Euro-zone finance ministers said that the rescue plan laid out for Cyprus served as a template for addressing future banking problems in the euro zone. This had a frenzy spread across the markets as the perception of the nature of the deal being one-off reversed in minutes.

Dijsselbloem later clarified his comments and in a statement saying “macroeconomic adjustment programs are tailor-made to the situation of the country concerned and no models or templates are used.” However, the markets remained low and refused to shrug losses off. European markets ended the day lower in the range of 0.23% and 1.12%. The US markets too faced the weight of these comments and ended the day lower in the range of 0.31% and 0.44%.

Spooked investors lingered in the possibility of the measures being undertaken in other European countries, for the obvious reasons, and considered it inevitable. Although the last-minute deal in Cyprus helps avoid bankruptcy, it snatches away the security of a depositor in a bank.

The opening in Asia has been reflective of these fears. The Nikkei 225, Hang Seng and Shanghai Composite are trading lower by 0.24%, 0.54% and 1.32% respectively. The SGX Nifty too was trading lower by 23.50 points at 07:45 AM today.

Having looked at these wide-spread fears and implications, the Indian markets are likely to see a negative opening today.