As the European authorities finalize the details on the PSI and the 130 billion Euro bailout, both Cypriot and Greek equities remain in the doldrums. The benchmark Cypriot stock market index (General Market Index CSE) and the Greek Benchmark index (FTSE/ASE 20 Index) are down 71.5% and 54% going back to the beginning of 2011. They are both sitting just above their 2012 lows.
If we look at the performance of the benchmark equity indexes of the other PIIGS, we'll see that three of them (Spain, Italy and Portugal) are faring quite a bit better, with Ireland showing signs of a very strong recovery.
For Europe in general, the markets are expressing some concern (through the EURUSD) regarding the bailout and the 2nd iteration of LTRO by the ECB. LTRO v2 has expanded the ECB's balance sheet by another 528 billion euros.
Here's some more details on LTRO v2 courtesy of Seeking Alpha:
After the first long-term repo operation (LTRO) done last December by the European Central Bank (ECB), on 29 February, 2012, the ECB offered another unlimited 3-year LTRO, at a cost of 1% to European banks. In this operation banks raised €529.5bn, a small increase compared to the previous €489bn raised on the first LTRO. Around 800 banks receive this cheap funding, clearly above the 523 banks registered the first time. As discussed recently in my article "EUR/USD: What To Expect From Next Week's LTRO", this number is below expectations (survey from UBS) and possibly a sign that European banks are in better shape than expected.
So both the total amount and the number of banks involved were higher than LTRO v1, but because the numbers for LTRO 2 come in below UBS' estimates, banks are in better shape than expected. Hmmmm. How much does all of this extra liquidity by the ECB have to do with rising fuel prices? We think a lot, especially when considering that it's not just oil that is up significantly in 2012 but precious metals as well.
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