Markets welcome Cyprus bailout agreement but analysts warn more uncertainties lie ahead
Markets have welcomed the late night deal to bail out Cyprus and avoid the island's departure from the eurozone, but a number of uncertainties remain.
Banking shares in particular moved higher, as the threat of an imminent collapse of Cyprus's financial sector receded. Royal Bank of Scotland has risen 6p to 299.3p while Barclays is 6.25p better at 298.25p and Lloyds Banking Group has been lifted 0.7p to 49.33p. RBS and Lloyds were also lifted by reports that two of the more hawkish members of the Bank of England's financial policy committee were set to leave which analysts said reduced the likelihood of substantial capital raising or shareholder-hostile restructuring for the banks.
The FTSE 100 is currently 50.16 points higher at 6442.92, after suffering its worst week since November. Joe Rundle, head of trading at ETX Capital said:
Cyprus may have avoided an exit from the euro zone and an imminent collapse of its banking sector but the small island's future as a member of the euro zone remains unclear. Despite a deal by the Troika to provide Cyprus with emergency money, confidence surrounding the euro zone has hit rock bottom since the start of the year. Optimism has turned into caution as contagion from the debacle in Cyprus is very much alive.
...This [market] rally is likely to be short-lived with the attention likely to re-shift again to the prolonged political uncertainties in Italy, a country that remains ungovernable. Surprisingly, Italian bond yields are back to pre-election levels despite the political situation remaining as uncertain as ever. Markets clearly appear to be more hopeful than they ought to be on the euro zone muddling through this crisis – this would suggest that any potential flare-ups in the euro zone crisis, [Spain, Italy, Greece or Cyprus] will have the potential to send shockwaves to risk sentiment.
Away from the eurozone, Vodafone has added 4.55p to 188p after new reports of a possible deal to sell its 45% stake in US joint venture Verizon Wireless. There has been much speculation about a sale or, as an alternative, a purchase of the whole of Vodafone by its US partner Verizon. The Sunday Times reported that Vodafone wanted to make a clean break with America, and that Vodafone was confident it had ways to mitigate any capital gains liability. Verizon's shareholders were said to be against a full merger. Jerry Dellis at Jefferies said:
It is not clear how a large proportion of any capital gains tax liability could be mitigated while allowing Vodafone to make a clean break from US. Even if a feasible solution could be found we disagree with the bull-case view that any point of tax law would be clear cut. In our view, Vodafone could face protracted debate with tax authorities, something we believe it wants to avoid.
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