IIFT Daily Note with Peter Brown

The second Eurozone economy laid to waste by the Euro.

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Cyprus will over the weekend become the second economy destroyed by the Euro (the first being Greece). They will do a deal to stave off the ECB pulling the plug on their banking system but the damage is already done. Protecting depositors up to 100K is good for politicians but burning larger depositors is carnage for the economy. Cyprus will have to introduce capital controls, bailing in the deposit holders and destroying the reputation of the country as a banking haven. Cyprus faces decades of depression and all because someone thought it would be a good idea to let them borrow at the same rate as the Germany economy and fix their exchange rate too. What a disaster.

On the markets we will get a bounce when the deal is announced but it will be short lived. Economic fundamentals in the Eurozone are awful, low growth, low sentiment, low economic activity, bad banks. So the bounce will be shallow.

On the US expect a good rally when the Cyprus deal is announced. That side of the pond is better. Growth and stimulus will support the stock market.

Levels today are. Euro 1.2880/60  1.2980  1.3100    S&P 1532   1542  1552

USD/JPY should also bounce when the deal is announced as JPY safe haven trades are unwound. However we are approaching Japanese year end and their may be some repatriation flows so I am staying out of the pair till next week.

Stay away from the IBEX also, a deal today will cause it to soar. We will get a chance to sell it again next week.

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