The psychological impact of the capital controls in
Cyprus – and its potential spread as a “contagion” – won’t be clear until later
this week. But the damage to Europe’s
leading financial centers is already conspicuous as the charts demonstrate.
Witness the declines in the stock markets of
several major European nations as well the continued weakness in the euro
currency. European bourses were
considerably weaker on Monday and Tuesday, led by a fresh new quarterly low in
the euro ETF (FXE). Spain’s stock market
was down 2.27% on Monday and down an additional 1.84% on Tuesday.
Spain’s IBEX 35 stock market index is testing its
quarterly low while the Italy ETF (EWI) dropped 4.06% on Monday and a further
1% on Tuesday. The country that got the
euro zone avalanche started back in 2010 – Greece – saw its stock market
decline to yet another new low today via the Greek ETF (GREK) shown below.
As Sharps Pixley pointed out, “Although the
Finance Ministers highlighted that Cyprus is a special situation, the European
banking crises and contagious effects are very real.” Italy meanwhile still doesn’t have a
government.
Each of the stock markets and country ETFs mentioned
above present a picture of a weakened continent vulnerable to even the
slightest bad news. If Cyprus bank
depositors run the banks on Thursday (when the banks in that country are
scheduled to re-open) it could send shockwaves through the financial market of
Europe. This in turn would be the
catalyst for a return to gold among investors, especially in troubled European
nations.
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