Today's Major Market Move - Cyprus Stock Market Drops 4% in Today's Session

Oh how the central bankers and politicians long for the days when a bailout could generate a stock market rally that would last longer than a week. Take the Cypriot equity market as an example: after the latest Greek bailout was announced on July 22, stock markets around the world, including Cyprus, surged (you can read our post about this here). But the euphoria in Cyprus barely lasted through the weekend as the market began to roll over on Monday. Here's a chart of the General Market Index CSE which is the main Cypriot equity index:

Click on the image for a larger view.Click here for the current version of the chart.
After a 4% drop today, the gains from the bailout news have almost been completely reversed and the index is now nearing the lows of 2011. This article from Reuters does a good job of highlighting the different issues facing the island nation's economy which include:

• recent debt rating cut by Moody's
• exposure to Greek debt
• loss of over 50% of power generation capability
• gdp growth estimates cut to 0 for 2011
• 10 year government bond trading at 9.5%, effectively cutting Cyprus out of bond market

Also mentioned in the article is a quote by the head of the Cypriot central bank that the government may be forced to seek a bailout. The impact of a Cypriot bailout would most likely be more psychologically damning rather than causing any actual economic damage. The Cypriot economy is after all only 10% the size of Portugal's which is then only 10% the size of Italy's.

(Data is courtesy of the IMF)

But with that being said, remember that when Iceland (who's economy is only half that of Cyprus) imploded in 2008, it had sent out some major economic shock waves, the effects of which are still being dealt with today. Just recently Iceland finally agreed to a payment scheme for reimbursing Dutch and UK depositors of Iceland banks.

Today's Major Market Move - Cyprus Equity Market Down 8% for the Day

As a result of the worsening situation with Italian and Portuguese sovereign debt, there's a bloodbath going on in European stock markets right now. All the other news sources will be reporting on the usual suspects: Greece, Spain, Italy, Portugal, etc., but the largest downward moves at the moment are in Cyprus and Hungary.


The Cypriot equity markets are down a vertigo inducing 8% (imagine a 1000 point drop in the DOW in a single day). Hungary had managed to stay out of the limelight for the past few months, showing resilience after it saw dramatic weakening in it's currency at the beginning of this year. Chart of the USD - Hungarian Forint cross:


All of the recent gains in the equity markets of the PIGS have essentially been lost and those markets are now plumbing new lows for 2011. Oh how we pine for the days when a bailout-induced market boost would last longer than 2 weeks. Here's the FTSE MIB Italian Equity Index:



Italy and Spain are of course the big kahunas in the european debt minefield, but there has been almost no mention of Cyprus in the media. As mentioned here in an earlier post, Cyprus has a GDP twice that of Iceland and will most likely also require a bailout in the not-too-distant future.

(Click on the images for a larger view.
Click here for the current performance of global equity indexes.
Click here for the current chart of the USDHUF cross.
Click here for the current chart of the FTSE MIB Index.)