Market update: Eurozone’s vulnerabilities dampen sentiment once again

US equities declined on Wednesday as worries over a run on banks in Cyprus and the contagion to other lenders in Europe held sentiment in check. Earlier losses, however, were somewhat recouped. The Dow Jones closed down 0.2% while the S&P 500 index managed to close down just under 1%, as investors took earlier declines in the day as the opportunity to buy.

Asian trading overnight reflected the mood in the US. While major indices closed down, Chinese shares fell the most (Shanghai  2.8%) as the country’s banking regulator issued new rules on wealth management products to increase transparency and reduce risks. The products are often sold as higher yielding alternatives to bank deposits and have been used to fund risky projects such as property development. The focus in Europe this morning is the re-opening of Cypriot banks after nearly two weeks, under very strict capital controls. Given Italy’s political instability and the spike higher in peripheral European bond yields yesterday, investors are wary of contagion from Cyprus to other parts of the region. At the time of writing, stock markets were showing some resilience with the FTSE Eurofirst 300 up 0.3% and the FTSE 100 index up 0.2%.