The Troika said that for Cyprus to receive Eurozone bailout funds, the country would have to enact a 'stability levy' on its citizens which would call for a tax on bank deposits of 6.75% - 9.9%. This provision is not going to go over well, and citizens were lining up at their banks to pull money. The banks have been unable to open, and may not open until Thursday.
The reason why other markets are watching so closely is that this is a new provision of the bailouts, and if this tax is levied on Cyprus people are left to ask who is next? Could this happen to citizens in Spain or Italy? That would lead to huge runs on the banks. But this is a worst case scenario, and it is more likely that the damage is contained to Cyprus and viewed as a one-off. That said, it bears monitoring.
In economic news in the U.S., the NAHB Housing Market index came in at 44 vs. 46 in the prior month.
Asian markets were down across the board overnight after news of the Cyprus bailout. Japan was down -2.7%. China's house prices rose 2.1% last month. And Hong Kong's unemployment was in-line at 3.4%.
Europe's markets are also lower today. A flight to safety can be seen in the German bunds where the 10-year yield traded down 6 basis points to 1.40%. That's even lower than the U.S. 10-year yield which today is lower by 5 basis points to 1.95% and sitting right at its 50-day support.
The volatility index is spiking today, up 13% so far to a still relatively low level of 12.85.
Trading comment: The Cyprus news could turn out to be much ado about nothing. But as our markets have been marching relentlessly higher it is certainly seen as enough to take some profit taking. So far the selloff doesn't appear to have the teeth behind it to really scare investors. Unless we see a much steeper selloff into the close I would expect dip buyers to show up again in the next day or so. That would fit into the continuing stair-step market pattern. We have not done any buying yet, but will likely dip our toe into the water today while still keeping some powder dry to do more buying if we continue to pullback.
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