April 1. Contagion jumping from Cyprus to Italy?
–The Muslim Brotherhood is calling it the EU spring.
–Big depositors in Bank of Cyprus to lose far more than than feared, 60% or more. (Who couldn’t have seen THAT coming?) According to ZH, Cyprus’ parliament head says there is “no future” under the troika. Given capital controls on cypriot euros, is a full exit that much of a leap? The contagion appears to have affected Italy as Monte dei Paschi admits billions have been withdrawn. If JPM’s CEO Jamie Dimon didn’t realize the extent of the problems in his London branch, and the Fed didn’t see the mortgage crisis coming, then how are ordinary depositors supposed to gauge the financial strength of banks? Stress tests? (Cyprus passed). Ratings agencies?
–Speaking of which, Moody’s is reportedly poised to downgrade Italy; President Giorgio Napolitano on Saturday ruled out standing down early to make way for new parliamentary elections…several sources said Draghi called Napolitano to warn that early elections could make a fragile situation worse. In any event, even a whiff of trouble will likely spark capital flight in peripheral banks. Napolitano on Sunday appointed ten “wise men” to propose reforms in a bid to make it easier to ultimately form a government, seen as a positive step in breaking the political impasse.
–The Fed’s liquidity swap lines to foreign CB’s barely rose according to Thursday’s data, but what if they start to be tapped in size? The WSJ reports that the new Chair of House Financial Services (Hensarling), “wants to limit taxpayers’ exposure to banking, insurance and mortgage lending.” If the Fed does feel compelled to ease funding in the EU, I would expect some in Congress to strongly object.
–Elsewhere, Bloomberg reports that S Korea’s Industrial Production fell in Feb, “signaling that a recovery in Asia’s fourth-largest economy may be slower than expected as a weaker yen threatens exports.”
–Russia announced, without any international warning, massive war games to be conducted on the Black Sea, ” seen by observers as Putin flexing Russia’s military muscles.” On the plus side, North Korea doesn’t appear to be targeting Chicago with missile strikes.
