All is calm in Cyprus, but is that a bad sign?

Journalists seem to be outnumbering Cypriots standing in lines at banks in Nicosia. That's good news, right?

Maybe, but there may be consequences. In a note this week, Moody's said the lack of a strong reaction to Cyprus may make policymakers even more willing to go after bank creditors in the rest of Europe.

"In Cyprus, policymakers seem to have concluded that spillover effects to other banking systems, including the periphery, will be limited or can be contained," the ratings agency said. "We think the market's relatively muted reaction so far to these developments may embolden policymakers in the future should they feel contagion risks can be contained."

Ouch! There is serious damage accumulating in European banks, with many down 2 to 3 percent again today. Just in the last month alone:

With this chapter of the European Debt Shuffle ending, I asked a few traders what the main takeaways were. Three points seemed especially relevant:

1. Bank creditors face greater risks than taxpayers
   
2. Depositors are unsecured creditors
   
3. The free movement of capital is in doubt
   

There are two other conclusions you can reasonably make:

First, weak European banks could be in trouble - not just from retail depositors, but from corporate clients. Imagine this: you are sitting on the Finance Committee of a major European or U.S. company, and you learn that your company has, say, $25 million in cash sitting in a somewhat shaky Italian or Spanish bank.

I mentioned yesterday that the two biggest problems facing the markets were poor earnings commentary, and the "Sell in May" philosophy, which has gathered a large following in the past several years.

Right on cue, ISI send a note to its clients this morning offering to take the other side of the trade. "More Arguments Against 'Sell in May' " is a lively treatise that makes the following points against selling now:

Stocks rebound off lows as Dutch Finance Minister backtracks on "Cyprus is a template for Europe" comment.

Well, that didn't take long! I noted in my prior note that I would not be surprised to see some "clarification" from Dutch Finance Minister Jeroen Dijsselbloem about his comment that Cyprus would serve as a "template" for the rest of Europe.

That clarification took less than three hours. Here is the new statement from an aide: "Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used."

It's a template, it's not a template, it's a template, it's not a template....

Regardless: the damage is done.

And this morning I noted that April 4 would be the next big date for Europe, when the European Central Bank (ECB) will meet and would no doubt try to soothe nerves over Cyprus.

They didn't even wait that long. The ECB is also out with comments that they will not object to a Cypriot request for aid.

Dutch Finance Minister Jeroen Dijsselbloem (leader of Eurogroup Finance Ministers) helped tank the markets midday when he said that the Cypriot plan was a "template" for Europe.

What does that mean? It seems to mean that if a bank needs to recapitalize, it should go first to bondholders and shareholders, then to uninsured deposit holders...before they consider a bailout from the Troika (ECB/IMF/EU).

In other words, he is implying that uninsured deposit holders may now routinely be hit before any bailout, or at least at the same time as a bailout.

Cyprus: the good and the bad news.

The good news: a deal is reached that imposes no broad tax on depositors, no losses by depositors with up to 100,000 euros. Instead, it does force a bank restructuring, with Laiki Bank essentially being split into a "good bank" (depositors under 100,000 transferred to Bank of Cyprus) and a "bad bank." Most Laiki bondholders will be wiped out, with uninsured depositors losing between 30 and 70 percent.

Bad news: We have a country that will be in an economic tailspin and require more, not less, assistance from the European Central Bank. We have capital controls on a European country. We have the sight of a chaotic negotiating process, led by the EU which insisted that depositor money be part of the solution, which occurred with no due process.

We have a deal that does not even require the approval of the Cyprian Parliament, since legislation was passed on Friday. How weird is that? The deal will require approval from the parliaments of several countries, including Germany, but not of the one country most affected.

Global economy slowdown play in evidence today:

FedEx (FDX) infection spreads in Transports-yesterday much of the weakness was in FDX alone, today that is different--FDX down 13% this week, more importantly stocks related to FDX that were not down yesterday are seeing selling today: GATX (GMT) and Landstar (LSTR) are good examples...these play in the rail/truckload/intermodal/shipping space.

Multi-industry companies--companies that manufacture many different products (electrical, machinery, tools, motors, air conditioning, etc.), that sell to many different businesses businesses across many countries--are down one to two percent: ABB (ABB), Parker Hannifin (PH), WESCO (WCC), Ingersoll Rand (IR), Regal-Beloit (RBC), Textron (TXT).

In addition, large global industrials in specific spaces are also weak: Cummins (CMI) and Goodyear (GT) (trucks and tires), Flowserve (FLS) (pumps), Fastenal (FAST) (bolts, fasteners), and Tyco (TYC)(locks, alarms).

Earnings and guidance: What's up? First Federal Express, then Caterpillar with disappointing sales, then Actuant a maker of industrial products worldwide, took numbers down, then Oracle after the bell.

Today it's Airgas, the biggest supplier of industrial gases, which provided an update on organic sales growth for the quarter, calling it "disappointing" at negative 2 percent for the month of February. Sales in March have not improved over February, so the company is warning they miss the low end of their earnings guidance. Importantly, ARG is an entirely U.S.-based company, so no excuses about weakness in Europe or China.

Stocks rally...but it may have been due to the Bank of Japan, not the Federal Reserve.

Stocks did nothing for the first 10 minutes or so after the Fed announcement, but after that the Dow Industrial Average suddenly shot up almost 40 points, while bonds remained unchanged.

The new head of the Bank of Japan (BOJ), Haruhiko Kuroda, is scheduled to hold his first press conference as BOJ chief tomorrow.

Shortly after 2:00 p.m. ET, the Japanese press leaked that Kuroda would pledge "bold monetary easing both in terms of quantity and quality."

While it has been anticipated that Kuroda would call for quickly trying to achieve a two percent inflation target, Kuroda will likely call for an early start to an aggressive program of asset purchases with no set end date, according to The Nikkei newspaper.

The yen weakened against the dollar.