St George Economics economy and finance update
The Cyprus parliament overwhelmingly rejected the controversial bank deposit levy, with 36 lawmakers voting against and none of the 56 lawmakers voting for it.
This was despite the planned bank deposit levy having been revised to a more progressive plan which would have seen savers with deposits of less than €20,000 exempt from the levy.
(However, this plan did not include an increase in the levy on deposits above €20,000 and so would have left revenue from the levy below the €5.8bn target.)
The deposit levy was a condition for Cyprus' €10bn bailout proposal from the European Union and International Monetary Fund.
A senior German official warned Cyprus' banking system faced insolvency if a deal could not be reached, saying Cyprus' two largest banks were "effectively illiquid".
There are concerns the ECB could cut off funding to the Laiki Bank, the second largest Cypriot bank (as it no longer qualified for the Emergency Liquidity Assistance program).
This move could lead to a collapse of Cyprus' financial system and possible exit from the Euro.
Following the Cypriot vote, the ECB reaffirmed its commitment to provide liquidity as needed within the existing rusles.
Cyprus' finance minister, Sarris, who was rumoured to have resigned (he denied the speculation) is in Moscow to hold talks about financial assistance from Russia, which provided €2.5bn in 2011, but refused a more recent request.
Cypriot banks will be closed until Thursday, as will the stockmarket.
It is possible the banks will stay closed for longer, with next Monday also a scheduled bank holiday.
According to ECB officials they are working with Cypriot authorities to develop contingency plans, including capital control measure, to stem potential capital outflows from Cyprus, when the banks reopen, which are said to include limiting daily withdrawals and capping the amount that can be taken out electronically.
The US stockmarket weakened for the third session, with uncertainty over Cyprus weighing on sentiment.
The Dow was unchanged, while the S&P 500 slipped 0.2% and the Nasdaq was off 0.3% for the session.
Bond prices rose (yields fell), supported by safe haven flows into US government debt amid concerns about Cyprus.
European peripheral bond yields continued to climb, with the Italian 10-year bond yield up 10 basis points to 4.73% and the Spanish 10-year bond yield up 8 basis points to 5.04%.
Increased risk aversion saw the Aussie dollar weaken against the major currencies.
The Aussie, however, gained ground against the Euro, which weakened on news Cyprus' parliament had rejected the proposed deposit levy.
The Euro fell to almost a four-month low versus the US dollar.
Commodity prices weakened on concerns about demand, given developments in Cyprus.
The gold price gained this morning following the parliamentary vote in Cyprus.
The minutes of the March RBA board meeting simply added detail to their post-meeting announcement.
The capacity to cut the cash rate further was again clearly stated as was the view that the reductions in the cash rate were beginning to have an impact.
RBA Deputy Governor, Philip Lowe, spoke at a forum and highlighted the sound position of the Australian economy.
He noted the pain and stress caused for some sectors by the higher AUD but noted that business was responding positively to the challenge.
Foreign direct investment into China rose for the first time in nine months in February and, at US$8.21 billion, was up 6.3% on a year earlier.
At the same time the Beijing based Conference Board leading economic index rose 1.3% in the month of February suggesting ongoing economic growth in China.
Euro zone construction spending fell 1.4% in January, to be down 7.3% in the year to January.
The German ZEW analysts expectations survey rose from 48.2 to 48.5 in March, its first straight rise and the highest level in almost three years.
CPI edged up to 2.8% in the year to February, after four months sitting at an annual rate of 2.7%, with utility bills (mostly energy) accounting for the rise.
The PPI for inputs rose to 2.5% in the year to February (from 1.9% in the year to January) and the PPI for outputs rose to 2.3% in the year to February, from 2.1% in the year to January, with energy prices and Sterling depreciation pushing producer prices higher.
The core PPI for output, however, slipped to 1.3% in the year to February, from 1.4%, matching the low point reached in September 2009.
Meanwhile the ONS house price index slipped from 3.3% in the year to December to 2.2% in the year to January.
US housing starts rose 0.8% in February.
Single family starts rose 0.5%, while multiples rose a modest 1.9% after falling a revised 19% in January.
Permits rose 4.6%, with single family permits up 2.7% (multiples 8.1%); singles permits have not posted a fall since March last year.