Deal or No Deal? No Deal. Cyprus Finance Minister Michael Sarris has returned to Cyprus after two days of talks failed to deliver any rescue deal for the country. While Russia did accept an extension of an existing five-year loan set to expire in 2016, there was no further aid offered.
Russian Finance Minister Anton Siluanov told newspapers that Russian investors were not interested in Cyprus’ offshore gas reserves. These gas reserves were offered to Russia, giving them a chance to develop them in exchange for financial aid.
Without Russian help, Cyprus is going to have to come up with some type of solution on their own as the Cypriot Parliament meets today in emergency session. The European Union has issued an ultimatum to Cyprus that they need to raise EUR 5.8 billion by Monday or the ECB will cut off liquidity to Cypriot banks.
The Eurogroup of finance ministers said on Thursday that it will discuss new proposals with Cyprus and will continue negotiations with the country. The group is ready to insure “the stability of the euro area as a wholeâ€. It should also be noted that an EU official did say the Euro Bloc was ready to see the island country banished from the EURO to contain damage to the European economy.
Adding to Cyprus’ woes, S&P lowered their rating to CCC, down from CCC+, with a negative outlook. They also said that “given that the assets of Cyprus’ indigenous banking sector are more than 5x GDP, we consider Cyprus’ credit standing to be inextricably linked to its banking sectorâ€. In other words, without any credible alternative source of capital or fiscal financing, the chance of a disorderly credit event is stronger.
The EUR has been straddling the 1.2900 level overnight testing support at 1.2880, as well as resistance at 1.2925. The downside risk on EUR remains, and a the target of 1.2650 remains intact as long as the EUR remains below the 1.3120 level.
Equity markets are beginning to feel the pain of the Cyprus situation. The DOW closed lower yesterday and this carried over to the Asian equity markets. The March 25 deadline is real and the consequences of a failure to meet this deadline are unprecedented. Will the EU force Cyprus out of the EUR? Will Cyprus come up with a plan B or a plan C to insure they receive their bailout money? These questions probably are not answered until later into the weekend. Traders will keep an eye on any news coming out of today, but I would think any rise in EUR at the moment gives traders a new opportunity to sell.
