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Pre-Market Primer: Cyprus Deposit Tax Shakes Global Trust in Banks; Markets Nosedive

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Tiny Cyprus has huge implications for the globe today.

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Markets around the world were rocked over the weekend as the bailout of Cyprus made depositors from Europe to Asia feel that their money isn't safe in banks.

The Eurogroup's bailout terms included a controversial stipulation that would force a deposit tax of up to 10% on all Cypriot savers to help pay for the tiny country's rescue. A full-scale bank run ensued in Cyprus and trust in banking in other troubled eurozone countries eroded.

To calm the bank run, Cyprus president Nicos Anastasiades is trying to offer securities linked to the island's gas reserves and by making the tax more progressive, taxing less wealthy Cypriots at 3%. As the agreement stands, the levy is 6.75% on all deposits up to 100,000 euros and 9.9% above that. The vote on the bailout has been delayed until Tuesday.

Bank deposits are five times the size of the country's economy. Cyprus is a well-known tax haven for Russian millionaires, whose deposits could be the true target of the tax. The Russian government has criticized the levy and might extend a loan to the country to obviate the bailout.

Following heavy losses in Asia and Europe, stock futures are heading down before the opening bell. The Dow (INDEXDJX:.DJI) is set to decline after losing its winning streak on Friday. This morning, futures are down 0.58% at 14,349 before the opening bell. S&P 500 (INDEXSP:.INX) futures are also down 0.89% at 1,539.80 and Nasdaq (INDEXNASDAQ:.IXIC) futures rose 0.93% to 2,764.50.

Gold prices rose slightly and the euro dropped against the dollar on the news of the botched Cyprus bailout. US WTI oil futures are down more than 1% at $92.49 per barrel. The American economic calendar is quiet except for the National Association of Home Builders' Housing Market Index, which is expected to improve by one point to 47 this month.

While the Cyprus debacle hit European financials the hardest, US consumer lenders were not unscathed. Bank of America (NYSE:BAC) declined by 1.19%. Citigroup (NYSE:C) fell 1.69%, and JPMorgan Chase (NYSE:JPM) fell 1.42%.

After Google (NASDAQ:GOOG) announced that it was sunsetting the popular Google Reader RSS aggregator, Feedly, a smaller competitor, welcomed half a million new users.

Twitter: @vincent_trivett
No positions in stocks mentioned.
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