Until this weekend, the most important event this week was the FOMC meeting on Wednesday. Over the weekend, though, the euro zone took center stage with debt issues in Cyprus; its banks are teetering on collapse. The plan that emerged calls for taxing all depositors in the banks in the country; the tax calls for 10% tax for deposits over 100K euros and 6.75% on deposits less than 100K euros. After months of little news from the euro zone, it is back now with another crisis that could threaten the euro nation. Taxing depositors to shore banks had been talked about over the years of crisis in the zone, but had always been dismissed. It leaves the question now about other countries in the EU and resurrects the debt crisis that hasn’t gone away even after months of quiet in the zone. Early this morning the stock markets in Europe and here are under pressure and has led to a decline in US treasuries on safety concerns. The overall fear over the plan to tax depositors is fueling concerns over all banks in Europe that deposits may be subject to taxing.
There are housing reports this week: today the FHFA March housing price index; Tuesday February housing starts and permits; Thursday February existing home sales. With the EU now back in turmoil the outlook for near term interest rates looks better. The FOMC meeting ends Wednesday afternoon with the policy statement. The Fed will continue its QE but how it frames the economy and the economic outlook will draw most of the attention.