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Monday financial focus

Monday Headlines:
Cyprus agrees €10bn bailout deal
Laiki bank will close, Bank of Cyprus restructured
US consumer spending may have risen most in five months
US Senate adopt first budget in four years
UK closer to losing AAA rating
Asian stocks rise as Cyprus debt solution surfaces
European markets set to bounce back today
Euro advances and USD falls as Cyprus bailout approved
WTI oil continues to rise

Gold rises as the dollar falls – Industrial metals gain

News:
Cyprus reached an eleventh-hour €10bn bailout deal with international
lenders early this morning that avoids a controversial levy on bank
accounts but will force large losses on big deposits in the island’s two
largest lenders. The deal will allow the ECB to keep its emergency
lifeline open to Cypriot banks, preventing a meltdown of the financial
sector that threatened the country’s euro membership. It was reached
after a stormy meeting of 17 EU finance ministers that lasted almost
12 hours, and included a threat by the Cypriot president to pull his
country out of the euro. The plan does not need approval from
parliament because the losses on large depositors will be achieved
through a restructuring of the island’s two largest banks and not a tax.

The restructured bailout deal will see Laiki Bank, the country’s second largest
and most troubled financial institution, closed. Its €4.2bn in
deposits over €100,000 will be placed in a “bad bank”, meaning they
could be wiped out entirely. Bondholders in Laiki will be wiped out, a
first for a Eurozone bailout country. The remaining smaller deposits at
Laiki will be transferred to Bank of Cyprus, the nation’s largest lender,
which in turn will be shrunk and completely restructured. Deposits over
€100,0000 in Bank of Cyprus will be frozen and could see significant
losses once the lender is restructured and recapitalised. Bank of
Cyprus will also inherit the €9bn that Laiki owes the EU for the cheap
central bank loans that have kept it on life support in recent months.
Consumer spending probably increased in February by the most in five months as incomes rebounded, providing a kick
for the US economy at the start of the year.

The US Senate adopted a proposal on Saturday that would modestly reduce the US debt through higher taxes for top
earners as part of the first budget plan the Democratic-controlled body has passed in four years.

Britain came a step closer to losing its top credit grade at Fitch Ratings after George Osborne said debt will rise more
than previously forecast. The UK was placed on rating watch negative, “indicating a heightened probability of a
downgrade in the near term,” Fitch said in a statement in London on Friday.
Markets:
Overnight, Asian stocks rose, with the regional benchmark gauge recovering from its biggest weekly drop in seven
months, after Cyprus agreed to an international bailout. All 10 industry groups climbed, and futures on the S&P 500
Index climbed by 0.4%.

Today, investors expect Europe’s main stock indexes to rally, after Cyprus reached a deal with lenders. Spreadbetters
expect the FTSE 100 to open up 0.6% higher, the DAX to open up 0.9% higher, and the CAC 40 to open 1.1% higher.

Currencies:
The euro rose versus most of its major counterparts as EU finance ministers approved a bailout plan for Cyprus, reducing
the risk of a default and a disorderly exit for the nation. The 17-nation currency rebounded from its biggest weekly loss in
six against the yen as the so-called troika of international creditors prepared to deliver a €10bn rescue package. The
Dollar Index, a gauge against six major counterparts, fell for a fourth day, losing 0.2% as the euro advanced.

Energy:
West Texas Intermediate oil rose a second day after Cyprus agreed on an international bailout, easing concern Europe’s
debt crisis will worsen. Brent crude’s premium to WTI was near the narrowest since July.

Commodities:
Gold advanced even after Cyprus agreed to an international bailout as the dollar fell and concern persisted that the
region’s policy makers will face additional challenges as they tackle the debt crisis.
Industrial metals gained, however, as the wider group of investors bet on improved demand now that the bailout deal has
been approved.

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