The Cyprus situation as I said yesterday is not good for bank customers in the EU as it sets a dreadful precedent and proves that the expansion of Europe went too far too fast.
It would now seem likely that we could test the 1.27 area again in the Euro. This is quite a big shock to the system and I was surprised to learn that deposit holders were being tapped for cash while certain small group of bond holders were going to get their cash back. This is nuts as it overturns capital structure hierarchy, it's as though a department store goes bust and the customers are asked to contribute in order to bail out the store. I am extremely surprised that the population of Cyprus hasn't lost confidence in their leaders and started a Greek-style period of civil unrest. If they lose confidence that the system is working for them there will be a run on the banks.
The bond market is based on confidence; the confidence that at maturity one will be able to get one's capital back. This week the Fed meets and the minutes will mate fascinating reading because last time Bernanke was forced to go out and downplay the minuted concerns about exiting QE and play up the need to do more. He can only do this so often. If he overplays the hand he'll start to lose the market and with it the ability to borrow against the massive US deficit. Let's not forget that right now the Fed is spending $85bn a month buying various asset backed securities in order to pump money in at the long end of the yield curve. These minutes are very important and investors will need to watch the balance on the board of the FOMC.
Copper's weakness in the last couple of weeks has taken me by surprise. Ever since the Chinese leadership started talking down the housing market the metal has been on the slide.
As of yesterday there had been 23 straight sessions where copper stocks at the LME had reported an increase. Without Chinese buying or renewed confidence in economic growth copper looks likely to find it hard to rally. I suggest that investors watch the LME stocks at the Chinese copper markets for any sign of a flip in sentiment. News of yet another sharp rise in daily LME copper stocks of 18,100 tons continues a pattern of recent builds, as it was the 23rd straight session with a build in LME copper stocks.
It's a Gabba jersey by Castelli and they are not the clothing sponsors of the Omega Pharma Quickstep. A lot of teams had the same idea and wore the water resistant aero shirt at the start in Milan.