Dutch Finance Minister shocks markets

14.55 AEDT, Tuesday 26 March 2013

Dutch Finance Minister shocks markets
By Ben Taylor (Sales Trader, CMC Markets)

The Aussie equity market has been hit with selling pressure today as risk is sold in favour of safe haven assets following overnight comments by the Dutch Finance Minister Jeroen Dijsselbloem.

In what can only be seen as inexperience and mindlessness, the Dutch Finance Minister’s comments remind us that Europe has an insufficient framework to deal with its banking problems. Comments that the Cyprus resolution could be used as a "template" for future bailouts shocked the markets and managed to cease the overnight accent and reverse our fortunes.

The mere idea that the Cyprus bailout could be a template for other European economy bailouts is enough to drive fear into European deposit holders. We will need to see strong condemnation for such ideas tonight to ensure confidence is sustained.

As Cyprus banks open their doors I expect we will see footage of queues of depositors withdrawing their funds. I’m sure some Europeans will choose "under their mattress" as a safer place to store money rather than risk political naivety.

The constant lack of leadership and reactive policy is driving the search for safety. While a global run on banks is highly unlikely, once contagion has taken place it’s hard to tell where it may stop. The moves in Europe remind depositors that banking is not a risk free investment.

Banks and miners have been hardest hit today as well as Aussie dollar selling over USD safety. Given that the recent Australian job numbers were much better than expected I can’t imagine we will see too much steam coming out of the Aussie dollar before the next RBA interest rate announcement.

ENDS

http://www.cmcmarkets.com/

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