Cyprus impact

Cyprus impact: Saxo Bank says Cyprus turmoil "very good" for gold, and safe -haven countries like Singapore, as it now raises the question "is it safe to keep money in an Italian, Spanish or Greek bank anymore?" Spot gold seen climbing above US$1,600 oz in Asian trading for first time in 3 weeks, also lifting Australian producers. ‘‘Sell the euro,” Pimco’s Bill Gross tweeted earlier, saying the Cyprus news moves “risk-on trade to backseat” Yen strengthening vs euro pre-mkt Tokyo, erasing declines since March 6. UBS note that in terms of immediate contagion the Cyprus deal may pose limited risks. Depositors in Spain, Portugal or even Greece are unlikely to see many parallels to their country. Only if and when the situation were to sharply deteriorate elsewhere with a realistic risk of banking trouble might the Cyprus precedent become relevant. The biggest problem for the market will likely be the uncertainty due to parliamentary approval being postponed. A ‘no’ could have dire and unpredictable consequences. Such an outcome may be highly unlikely, but investors may still want to buy protection for the tail risk. Ultimately the parliament would seem to have no choice but to accept the deal, possibly after adjusting the numbers and putting a heavier burden on larger depositors. However, once banks reopen and the levy is being applied, depositors might still opt to withdraw their remaining balances. It is not clear how the troika would address such an outcome. For the euro, Monday is likely to be a difficult day as investors might want to be on the safe side in case the low but serious tail risks were to materialise. Safe haven currencies will probably do well, particularly the franc. Even though we do not believe the market scare will last, investors tomorrow are likely to trade defensively and any fading of the moves might thus have to wait until at least parliament has approved the deal.