Financial Markets…Global equities and oil rallied on Monday, while safe-haven assets including U.S. Treasuries and gold fell as a deal on bailout of Cyprus eased investor’s risk aversion. The Stoxx Europe 600 Index and MSCI Asia Pacific Index gained 0.6% and 0.9%, respectively, while the S&P 500 climbed closed to its highest level in morning trade. The rally in investor’s risk appetite also pushed oil prices higher, with WTI for May settlement gained 1.7% to $95.31. In contrast, U.S. Treasuries fell for a second day, with the 10-year yields rising as much as 5 basis points to 1.97%, while gold future for June delivery fell 0.7% to $1,597.40 an ounce, the steepest decline in three months.
The cost of insuring against defaults on European bank bonds declined from a four-month high, with the benchmark Markit iTraxx Financial Index of credit default swaps on the senior debt of 25 banks and insurers sliding 7 basis points to 170 bps, as Cyprus reached a bailout deal with international lenders.
High-income Economies…Leaders from the "troika" of international lenders and the government of Cyprus have agreed a deal to sequester the remaining EUR5.8 billion (USD7.2 billion) of the country's bailout from uninsured depositors in the Bank of Cyprus (BoC) and Cyprus Popular Bank (Laiki), averting the collapse of the country's banking system and subsequent disorderly default.
The agreed deal is anticipated to impose a haircut, estimated to be 30–40%, on uninsured deposits (those exceeding EUR100,000) in the Bank of Cyprus, far larger than the 9.9% and 6.75% levy on all deposits originally proposed. Uninsured deposits will be frozen until recapitalization has occurred. Laiki, the island's second largest bank, will be split into two, separating "good" and "bad" assets. The "good" bank will be transferred to the BoC. The "bad" bank will buy all the non-performing loans (NPLs) and toxic assets from Laiki at market prices with uninsured deposits frozen and transferred to the "bad" bank. Capital controls have been imposed in order to prevent withdrawals on Tuesday when banks are set to reopen after a 10-day closure.
Developing Economies…Latin America and the Caribbean: Brazil’s inflation accelerated to 6.43% (y/y) in the 12-months to mid-March, up from 6.18% one month before. However, it remained below the annual inflation target ceiling of the central bank, which is 4.5% +/- 2%. The price rises continued to be widespread, with almost three-quarters of consumer items in the index showed monthly gains in the month to mid-March, led by food and beverages (1.4% m/m).
Colombia’s growth picked up in 2012Q4 by growing 3.1% (y/y), up from 2.1% (y/y) in the previous quarter, led by improvements in construction and mining. Growth for the entire 2012 came in at 4%, down from 6.6% in 2011.
Sub-Saharan Africa: Mozambique’s growth accelerated 2012Q4 rising to 8.3% (y/y), up from 6.9% (y/y) in the previous quarter. Growth for the entire 2012 came in at 7.4%, up from 7.3% in 2011 led by strong gains in the extractive industry (40.7% y/y), financial services (12.8% y/y) and public spending (8.9% y/y).