European Shares to Open Sharply Lower on Euro Crisis
European shares were called to open lower sharply lower on Wednesday as investor caution replaced hope ahead of an unofficial European Union summit in Brussels to discuss policy responses to the euro zone crisis.
The UK’s FTSE was seen opening 56 points lower at 5347, Germany’s DAX was called 81 points lower at 6355, while France’s CAC was expected to open 35 points lower at 3049.
European leaders meet on Wednesday to discuss ways of breathing life into their stricken economies at a summit in Brussels, but the issue of Eurobonds and whether they can help alleviate two years of debt turmoil is expected to dominate the meeting.
Prime Minister Mariano Rajoy of Spain, where the economy and banking system are at the frontline of the crisis, will meet newly elected French President Francois Hollande in Paris ahead of the evening summit to discuss policy positions—a marked shift away from the traditional Franco-German axis.
At nearly all previous summits over the past two years, Hollande's predecessor Nicolas Sarkozy met German Chancellor Angela Merkel beforehand to fix a strategy, prompting criticism from other leaders about dictates from Paris and Berlin.
The meeting comes as Dutch right wing politician Geert Wilders, who aims to turn a September 12 parliamentary election into a referendum on the euro and EU membership, filed a lawsuit on Tuesday aimed at postponing the Netherland's ratification of Europe's permanent bailout fund until after the poll.
The continuing uncertainty in Europe took its toll on the single currency on Tuesday, falling 1 percent against the U.S. dollar.
Former Greek prime minister Lucas Papademos told CNBCthat Greeks had no choice but to stick with a painful austerity program or face a damaging exit from the euro zone, a risk he said was unlikely to materialize but that was real, adding that while there were no preparations being made for a Greek exit, he could not “‘exclude the possibility that countries are making preparations.”
Meanwhile, the Spanish government will outline later on Wednesday its plan to restructure the recently nationalized Bankiaand announce how much additional money it will pump into the ailing lender, government sources told Reuters.
One of the sources said talks on the size and form of the bailout—through loans, equity or cash injection—were being held between the economy ministry, the Bank of Spain, Bankia and Goldman Sachs, which was hired last week to value the lender.
A final decision may not be made before Economy Minister Luis De Guindos address a parliamentary committee at 6:00 p.m. (12:00 p.m. New York time) to inform on the takeover of Bankia and the restructuring plan for the lender, although he will want to give key details of the government's strategy, the source said.
Meanwhile, Italian banks UniCredit and IntesaSanpaolo said they were selling their combined 11.5 percent stake in the London Stock Exchange (LSE), as they both move to shed non-core assets and boost their capital.
In separate statements on Tuesday, UniCredit and Intesa said they would place their respective stakes with institutional investors.
UniCredit has 6.1 percent and Intesa 5.4 percent of the LSE, which bought the Milan bourse in 2007, making them the LSE's third and fourth biggest shareholders.
The continuing euro zone crisis also means Germany will pay no interest to borrow money over two years this week, taking advantage of investor demand for its safe haven status bonds.
The country set a zero percent coupon on a new two-year bond to be auctioned on Wednesday, the Bundesbank said on Tuesday—the first time this has happened on debt of such long maturity.
While the euro zone debt crisis dominated the headlines, Egyptians are set to make history on Wednesday by holding free elections to choose their head of state for the first time in the country's 5,000 year history.
The presidential elections will run over two days in a wide open election that pits Islamists against men who served under deposed leader Hosni Mubarak.
Six world powers will test Iran's readiness under pressure of sanctions to scale back its nuclear program at talks on Wednesday aimed at easing a decade-old standoff and averting the threat of a Middle East war.
Global oil markets are edgy over toughening sanctions on Iran's vital crude exports and the possibility of Israeli strikes against its defiant arch-foe, which has threatened reprisals if it comes under attack.
Elsewhere, the World Bank cut its economic growth forecast for Chinathis year to 8.2 percent from 8.4 percent on Wednesday and urged the country to rely on easier fiscal policy that boosts consumption rather than state investment to lift activity.
In a biannual East Asia and Pacific economic update, the World Bank said a slowing China will drag growth in emerging East Asia to two-year lows this year, but warned Europe's seething debt crisis could inflict even bigger damage if it worsens.
Asian shares retreated on Wednesday. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.7 percent, after rising 1.1 percent for its biggest daily gain in almost two months on Tuesday and recovering from a 2012 low hit on Friday.
Overnight corporate news included the announcement that German software firm SAP is to buy Ariba in a deal valuing the business and commerce network company at $4.3 billion, in its latest move against its chief rival Oracle, in the fast-growing Internet-based computing market.
SAP is taking aim at Oracleas they vie with Salesforce.com in the multibillion dollar cloud-computing services market, one of the industry's hottest area of growth.
Shares in Ariba, which were halted briefly, leaped 20 percent to SAP's offer price of about $45 per share.
The fallout from last week’s botched launch of Facebook on the Nasdaq continued on Wednesday as two top U.S. financial regulators said the issues around the initial public offering should be reviewed.
After Friday's nearly flat close and Monday's 11 percent plunge, Facebook shares closed 8.9 percent lower at $31 on volume of 101 million shares.
At that price, the company has shed more than $19 billion in market capitalization from its $38-per-share offering price last week.
Finally, British bank Barclays announced it will sell its nearly 20 percent stake in BlackRockat a discount, sending the U.S. asset manager's shares down 2 percent after the closing bell Tuesday.
Barclays will sell 26.2 million BlackRock shares at $160.00 per share, a 2 percent discount from its Tuesday closing price of $163.37 on the New York Stock Exchange.
BlackRock will buy back 6.4 million shares for $1 billion, the company said in a statement.