Global markets were spooked after the European Central Bank delivered a final warning to dithering Cyprus.

Markets got a little more worried by the crisis in Cyprus overnight. We’re not talking gut-wrenching Greco-style panic here, but the offer was on. What sparked it? An ultimatum from the European Central Bank: sort it.

Officially, the bank said that they’ll only provide emergency liquidity up until Monday, after which “Emergency Liquidity Assistance could only be considered if an European Union/International Monetary Fund program is in place that would ensure the solvency of the concerned banks". And we know the European Union/International Monetary Fund program won’t be in place until the Cypriots front up with €6 billion. There are still plenty of options they could pursue, although the front runner seems to be 'good bank/bad bank'. Unfortunately, the bad bank would also include uninsured deposits, which just happen to be the larger, foreign held accounts. Not sure if Putin has sent a frigate over yet to ‘conduct exercises’ but that can’t be far away.

So following that announcement, the CaC fell 1.4 per cent, the Dax was down 0.9 per cent and the FTSE100 fell 0.7 per cent. That was the extent of the damage though and there were few signs of concern elsewhere. In fact, yields on Spanish and Italian bonds actually fell – 11 bps for Spain and 4 bps for Italy. Moreover, the euro barely budged off 30 pips to 1.2915.

Anyway, the whole thing is becoming very political – old school political – with Russia telling the European Union that any further discussion on Cyprus had to include Russia. I’m sure it’s not lost on many observers in Washington and Brussels that the Cypriot government’s first port of call was Moscow. Russia for its part has said it is happy to help, but only if the EU and Cyprus come up with proposals first.

So where to now? Who knows – but the EU reckons Cyprus must do three things before Monday: “Present a credible and viable Plan B to replace the rescue rejected by parliament, install long-term controls on capital placed in the banks, and prepare to merge the two main banks in trouble." It's going to be a busy weekend.

It’s a pity really, because in the real world the United States looks to be getting stronger by the day. We had three data points of varying importance. For me, the key indicator was initial jobless claims. These were confirmed around the 335,000 mark for the second consecutive week (to March 16), which is a good sign these gains are for real. Strong jobs growth looks set to stay with these kind of numbers.

Then we saw existing home sales rise 0.8 per cent in February after a 0.8 per cent gain the month prior – annually they are up something like 10 per cent. Finally, and of less importance, the US Philly Fed index shot up to 2 from -12. Not a bad outcome as the average is 3, but this index is bouncing all over the place so I’m not sure what to really make of it.

Cyprus won out on Wall Street however, and as I write, the S&P is off 0.6 per cent (1548), the Dow is 77 points lower (14,434) and the Nasdaq is 0.9 per cent lower (3225). Not much more to it than that – maybe some disappointing news in the Tech space, with Oracle slumping after reporting its results and Cisco suffering after a broker downgrade. The underperforming sectors outside of tech included basic materials and industrial. Otherwise, commodities were mixed, with crude down more than 1 per cent to $92.4, copper 0.2 per cent lower and gold rising almost $7 ($1614).

The only other thing to note was the Australian dollar. It shot higher from about 1900 AEDT and now sits comfortably above 1.04 at 1.0442. There was little else in the forex space, with the British pound 67 pips higher and the yen a little stronger at 94.8. Rates-wise we saw US Treasuries push a little higher, with the 10-year Treasury yield 3 bps lower at 1.937 per cent; the 5-year did little at 0.798 per cent and the 2-year sits at 0.257 per cent.

So in other news and data – the European PMIs slipped a bit in March, the manufacturing index is at 46.6 from 47.9. In Britain, retail sales surged 1.9 per cent in February after a 0.4 per cent fall the month prior, to be 3.3 per cent higher annually.

To the day ahead, the SPI is down 36 points (-0.7 per cent) so it’s probably not going to be the best of days. Apart from that it’s pretty quiet though. There’s no real data to speak of – just another flash estimate of Chinese business sentiment at 1230 AEDT.

Tonight we get the German IFO survey, which is tier one and worth watching. Nothing much outside of that...Cyprus, I guess.

Have a great weekend…

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