Europe lower on Cyprus fears as talks with Russia collapse

Markets across Europe were slightly lower in early trading on Friday after Cyprus and Russia failed to agree to a rescue deal after two days of talks. Cyprus must raise the required 5.8 billion euro by Monday in order to secure the 10 billion euro bailout or face the collapse of its financial system.

The financial markets have actually held up fairly well this week given the possible disaster facing Cyprus, almost giving the impression that investors are complacent about the potential fallout from the crisis. Should the small European Island see the collapse of its financial system the economy would be paralyzed and Cyprus could in worst case scenario be forced to leave the euro zone. However, despite this possibility the selling of riskier assets has not been as sharp as might have been expected. US and European markets are only down around 1% this week, although we could expect to see some short term weakness as we progress through the day and investors look to come out of positions prior to the weekend in case the ECB pull the emergency liquidity assistance (ELA) to Cyprus by Monday.

That said global markets have seen a surge in risk appetite since the start of the year and there is very much the sensation in the markets that the Cyprus situation could get pushed to the sidelines as we have seen with the Italian elections. Additionally it could be argued that the risk of contagion from Cyprus is small. Greece was pulled back from the brink due to fears of a domino effect and Greece is a small part of the currency block, 2% of its GDP. Cyprus is 10 times smaller than that, with a banking system eight times larger than the size of the economy and full of foreign money, making it a one off case that would not be replicated elsewhere.

By mid morning the FTSE was trading flat, the DAX has lost 0.25% and the CAC was trading down 0.5%.

Elsewhere in Europe Germany released its closely watched business climate survey which came in slightly worse than expected. However, this is likely to represent a slight downward correction of last month enthusiasm rather than the start of a new downward trend. The DAX did slip slightly on the back of the news but quickly regained lost ground.

Looking towards this afternoon there is a shortage of economic data so investors will be looking closely for any further developments in Cyprus.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.