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Brian's Monday recap: Cyprus chatter, Treasurys summary

Brian Shepard

Although Cyprus has secured a bailout, it is at a heavy price. The large depositors are taking the hit. The depositors may not know for years how much they will get back on their holdings. The Bank of Cyprus may exact a 20 to 40 percent haircut. The blow to the island economy may be as much as a 10 percent loss to GDP. The fact that money was taken will have a contagion effect. Moreover Cypriot citizens will have currency controls, which will cut them off from the mainland’s banks. This is to limit money from leaving the island. Although the markets are relieved, the euphoria may not last long - as the depositors of other struggling Eurozone countries are surely watching as 10yr sovereign spreads in Italy and Spain are wider now than they were last Monday - posted by Stanton Analytics.   Collective Intelligence!  Chatter - suggesting to ignore the Cyprus numbers being thrown around at the moment because the financial assumptions are out of date. The very fact that Lagarde keeps banging on about debt sustainability being achieved at 100% by 2020 is farcical. Borrowers in weak countries will find it harder and more expensive to gain access to sources of liquidity. The longer the bank holiday, the more likely Cypriot banks will see a bank run. The "solution" they have arrived at for Cyprus will not create enough credibility to stop a bank run. In fact, a Spanish poll over the weekend suggested that 89% of Spaniards are worried about the deposit tax in Cyprus; 62% believe their savings are in danger.    At (10:18CT) (Reuters) - A rescue program agreed for Cyprus on Monday represents a new template for resolving euro zone banking problems and other countries may have to restructure their banking sectors, the head of the region's finance ministers said. Also, European officials warn bailouts are getting increasingly difficult to negotiate given disagreements among creditor countries and the inability of debtor nations to convince their citizenry of the tough choices needed – Reuters.   It was all going so well. TV pundits could proclaim their omnipotence - knowing full well that Cyprus was a storm in a teacup - and then D-Bom hit the wires with some harsh reality speak. European banks plummeted - most of Italy's banking system ended limit down, European bank credit spreads blew to their widest in 4 months and bank stocks are playing catch down - as we pointed out recently (with their biggest 6-day plunge in 8 months) and almost negative YTD. Equity indices across the continent saw their biggest drops in a month (since the Italian elections) but it was Spain and Italy that bore the brunt. We can see the money leaving Europe. One only has to watch the euro/yen cross to see where some of it is going. The dollar has already been the beneficiary late last week. This is not over. The situation in Europe is going to get more severe - posted by Stanton Analytics.   US TSYS SUMMARY: Treasuries rising further amid 1) risk-aversion buying as Eurogrp head/Dutch Fin Min Jeroen Dijsselbloem said Cyprus bank restructuring plan should be seen as a template for rest of eurozone; 2) Tsys also had begun cutting losses earlier on Cypriot legislator Nicholas Papadopoulos said leaving euro must be considered after the recent bailout; 3) This spurred both fast money and real money buying and short-covering; 4) also technical buying has come in too, and also short-covering; 5) European stocks esp. in peripheral countries are getting hurt; France's CAC-40 off 0.97%, Spain's IBEX-35 2.30%, Italy FTSE-MIB -2.45%; 6) Cyprus and implications for larger EU sovereigns fluid; 7) CME had 4,830 Ultra Bond (ULM) futures blk trade at 155-17, a sale 7) Swap sources say initial risk-on selloff largely unwound except for Bonds and Ultra futures, also modest paying in fronts to intermeds by fast money accounts Euro currency also hurt by European worries.   Investors Pile Into Housing, This Time as Landlords. The housing recovery has been driven by institutional investors purchasing homes with the intent of turning them into rentals - WSJ.   Don’t miss this guy > @princetontrader aka Mike V posted his Pivots http://t.co/w9isbp1hbm Webcast http://t.co/ompepWGqTZ  At (08:52CT) Mike posted his vol windows ES: 1561.50 x 1550.50 and NQ: 2812.75 x 2793.25. So Friday you had a very textbook pullback and bounce off the middle band after the 4 prior sessions established the middle band as support. Everything we know about bands tells us that price should reach for the upper band now on the daily that's 1572. I continue to look for a pullback as we are straight up off middle band +22, watching europe news flow. It is also my position that for now that pullback is a buy. Triple pivots 1546/47 would be ideal. Need a great big punch with ticks and blood to turn this thing around. Exhaustion tops and apathy tops aren't working. Bears are still paying for blowing last Sundays gap down. So trade the day but from a swing perspective that's where I'm at. Last Monday was the Bears worst day of this whole deal from 1340.25. Conceding 25 handles after Cyprus.   Kathy has had some very good calls too! Charts posted by Kathy Garber @tbg4321. Harmonic rotations CL chart http://bit.ly/YA5IbN   ES http://bit.ly/YtoYdL   NQ http://bit.ly/15LEAql    CL http://bit.ly/X4DNBt    At (11:02) Kathy posted harmonically, ES requires a bounce into at least 1550.25, but could test 1554.25, for new rotation. Otherwise a b/d 1543.75 has confluence tgt 1537.5, current chart http://screencast.com/t/uxzg8MH4 Also, (10:18:12): ES, a hold below 1546.25 has 1537.5 tgt w/ scaling pt 1542.5.   During the Globex session 280k ESM and 1.3k SPM traded in a range of 1560.50 - 1548.90. In the premarket the dollar was down, crude and euro were up, indicating risk on. The U.S. equity futures were trading above fair value mirroring the global sentiment following an agreement on a Cyprus bailout. The Chicago Fed index checked in at 0.44 in February vs a revised minus 0.49 in January and inline with the run of stronger economic U.S. data of late. Also, the opening imbalance showed $380.21M x $139.45M.   Today’s SPM regular trading hours (RTH’s) gapped 4 handles higher to 1555.70-1556.30, traded a high of 1558.50 before quickly deteriorating in light volume - giving up the morning gains and then some. Globex volumes were moderate at best, but that did not help the premarket buyers that were caught long as the sell programs hit during the RTH’s. The SPM stepped lower, making a series of lower highs and lower lows and electing sell stops below Friday’s settlement of 1552 by 9:45 and by 10:20CT a new daily low of 1544 printed. Comments by Dutch Finance Minister Jeroen Dijsselbloem, head of the Eurogroup of euro zone finance ministers, that a rescue program agreed for Cyprus on Monday represents a new template for resolving euro zone banking problems and other countries may have to restructure their banking sectors - added to the morning decline. At (10:01CT) various Italian banks halted limit down (Unicredit, Intesa, Banco Populare) - FTSE MIB -2.8% - one line cost European banks about $15bln+ in collective market cap. The EU president clearly hasn't been media trained in becalming markets. Any chance of a denial regarding Dijsselbloem comments were taken out of context or misinterpreted? Jimmy Ticks suggested it could be too late, as the seed has been planted...would need a senior EU statesmen to come out and say Cyprus deal is not a template. DIJSSELBLOEM's driving EURUSD from 1.2915 to 1.2865 low. Based on the new EU view we could also see rotation out of european banks into american banks. They have been saying all along that Cyprus is a unique case and he is now saying that it will be the example to follow! Fed Governor Dudley spoke at 11:15 and his comments about staying the course on QE lent some sorely needed support.   By 12:15 a new low of 1539.20 and the DJIA was down 125 points and 35 minutes later - Headline Minefield: Outrageous statement/Denial/Retraction mts2 (12:52)  SPOKESMAN SAYS DIJSSELBLOEM DID NOT SAY "CYPRUS WAS A TEMPLATE FOR EUROPEAN RESTRUCTURINGS." At 12:58 the 1550 area held on the bounce. However, the OEX traders ain't buying it … at (13:03) redliontrader  posted they continue to get shorter. On the pullback the SPM held 1544.50 area and was trading 1546 area at 2:00. On the 3:00 cash close the SPM traded 1545 area before settling at 1546.90, down 5.10 handles, on the 3:15 futures close.    Brian Shepard is a 20-year exchange member of the CME Group.  _______________________________________________________________   YOU WANT A LOOK AT WHAT OUR TRADERS SEE EVERY DAY? SIGN UP FOR THE IM TRIAL AT http://mrtopstep.com/free/ IT’S THE REAL DEAL!  _____________________________________________________ Follow us on Twitter @MrTopStep https://twitter.com/mrtopstep Sign up for our free mailing list at http://mrtopstep.com/ for full report. DISCLAIMER: The information and data in the above report were obtained from sources considered reliable. Opinions, market data, and recommendations are subject to change at any time. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any commodities or securities. 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