Market Week: March 25, 2013

The Markets

Global equities took a hit from uncertainty over Cyprus. Domestic equities fared better; though they slid much of the week, optimism about a possible bailout agreement led to a rally on Friday that left them down only slightly.

Last Week's Headlines

• In a bipartisan vote, Congress agreed to continue to fund the federal government through September, the end of the current fiscal year. The bill generally maintains the spending levels mandated by the sequester, but allows greater flexibility in how both defense and nondefense cuts will be implemented. Next up in the ongoing arm-wrestling over federal finances will be the issue of whether to raise the debt limit again sometime after May.
• After the Cypriot parliament rejected a tax on bank depositors as part of a bailout deal, the country reached a last-minute deal with its international lenders (known as the troika) to restructure the country's banks and impose a tax on deposits over €100,000 to help pay part of the country's debts. The agreement would enable Cyprus to qualify for €10 billion in financial assistance.
• Saying that economic gains have been modest, the Fed will continue its current level of bond purchases. However, the amounts may start to vary from month to month if the pace of improvement picks up. The Fed also will continue to maintain interest rates at current levels until the unemployment rate falls to 6.5% from its current 7.7%.
• Housing starts rose 0.8% in February, putting them almost 28% ahead of the same time last year. The Commerce Department also said building permits, an indicator of future activity, were up 4.6% for the month and almost 34% higher than last February.
• There was more good housing market news from the National Association of Realtors®, which said sales of existing homes were up 0.8% in February. It was the 12th straight month of year-over-year increases in sales, and the 20th month of year-over-year price increases.

Eye on the Week Ahead

The reaction of Russia--a major depositor in Cyprus's banks--to news of a bailout agreement will be of interest to global markets, while data on consumer spending and housing will suggest the state of the U.S. economy.
Key dates and data releases: home prices, new home sales, durable goods orders (3/26); final Q4 2012 gross domestic product (3/28); personal income/spending (3/29).

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