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European stocks decline ahead of Cypriot bailout vote

Article By: ,  Senior Market Analyst
March 19, 2013 5:40 PM

European markets headed south for a third straight trading session on Tuesday as investors showed their concerns for the controversial bailout deal for Cyprus. Worries over whether Cyprus will actually agree to the deal to save it from default is still putting downward pressure on the European indices, although strong housing data out of the US has been a cause for optimism.

It would appear that the Cypriot Government is likely to reject the plans agreed by Eurozone officials whereby they would receive 10 billion euros rescue fund if they took between 6.75% – 9.9% from deposits in Cypriot Banks to make up the remaining 5.8 billion euros required. The vote is expected to start at 4pm; however, there seems to be confusion as to whether the vote will actually happen at all, especially if leaders are sure it will be rejected. If it is rejected then default looms for the country and there are also suggestions that Cyprus may leave the Eurozone.

European indices finished in the red, the FTSE lost 0.2% the DAX was down 0.7% and the CAC 1.3%. The euro also suffered falling below $1.29 and hitting its lowest point since November 2012.

The mining stocks dominated the losers list here in the UK as risk appetite has been reduced on the back of Cyprus fears and also downgrades by Goldman Sachs for Evraz, Rio Tinto and BHP Billiton, resulted in them shedding  5.4%, 5.4% and 4% respectively.

This problem of Cyprus really has served as a reminder to investors that the situation in Europe is not resolved and could be the beginnings of a spring correction as seen in both 2011 and 2012. However, it is also worth noting that Europe is only a small part of a much bigger picture which also includes China and the recovery in the US.

Data out of the US this afternoon was a cause for optimism and offered support to the market as housing starts data showed that the housing market in the US continues along the road to recovery with housing starts up 0.8% in February, better than expected.

Looking to tomorrow, the focus will return squarely to the UK for the Budget Statement from UK Chancellor George Osborne where £2.5 billion worth of cuts are expected to be announced.

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