Europe Markets Seen Mixed as Debt Crisis Persists
Associate Editor, CNBC
European shares were called to open mixed on Friday as European leaders squabbled over how to resolve the euro zone debt crisis and a slowdown in job creation in the region’s largest trading partner, the U.S., began to show signs of the crisis’ effects on the global economy.
The FTSE 100 was called to open 4 points higher at 5311, the DAX was seen opening 15 points lower at 6249, while the CAC was expected to open 8 points higher at 3025.
European politicians remained divided over the best solution to the current crisis as it emerged that Spain’s citizens, alarmed by the state of their banks’ finances, began moving their deposits offshore at the fastest rate since records began. Bank of Spain data showed a net 66.2 billion euros ($82.0 billion) was sent abroad in March, the most since records began in 1990. The figure compares to a 5.4 billion net entry of funds during the same month one year ago.
The head of the International Monetary Fund (IMF), Christine Lagarde, said Thursday that the global lender had not received a request for financial support from Spain and described her meeting with Spain's Deputy Prime Minister Soraya Saenz de Santamaria as "very productive."
After the meeting with Saenz, IMF Managing Director Lagarde denied a media report that the IMF was considering contingency plans for a Spanish bailout.
"There is no such plan. We have not received any request to that effect and we are not doing any work in relation to any financial support," Lagarde said in a statement.
There is no possibility for euro zone banks to be directly recapitalized using the bloc's permanent bailout fund as it stands, the European Commission added on Thursday.
The comments appeared to contradict a document released on Wednesday that said using the permanent European Stability Mechanism (ESM) to directly recapitalize banks "might be envisaged."
"With existing instruments with the ESM, if it comes into force as it is, we do not cover the possibility of recapitalizing banks through direct fund injections into banks from the ESM," Amadeu Altafaj, the Commission spokesman on economic and monetary affairs, told a regular news briefing.
Highlighting the impatience with European leaders, World Bank President Robert Zoellick said on Friday they must be ready to recapitalize banks in the event of a Greek exit from the euro zone and assure funding for Spain to prevent an economic collapse.
If Greece withdrew from the euro and European leaders did not act decisively to prop up banks, Zoellick wrote in a column in the Financial Times, the resulting crisis could push the continent into a "danger zone."
The impact of the crisis on the global economy was illustrated by lower than expected U.S. private sector employment figures. Private payroll growth picked up only slightly in Mayand claims for jobless benefits rose last week, suggesting the U.S. labor market recovery was losing steam after a strong performance early in the year.
Private employers created 133,000 jobs in May, payrolls processor ADP said. That was only a slight step up from April's tepid increase of 113,000 and below economists' expectations for a gain of 148,000.
The report comes ahead of the government's closely watched employment report for May on Friday, which is expected to show nonfarm payrolls increased by 150,000, up from a paltry 115,000 in April.
Meanwhile, Asian shares and the euro extended losses on Friday as China's factory activity data delivered its weakest reading this year, highlighting concerns the worsening euro zone debt crisis will further undermine global economic growth.
China's official purchasing managers' index (PMI) fell to 50.4 in May, down from April's 13-month high of 53.3. Economists polled by Reuters had expected the official PMI, which captures activity in the biggest factories in the country - many of them state-backed -to retreat to 52.2 for May, from 53.3 in April.
Ireland is likely to accept, by a margin of more than three to two, the European Union's new fiscal treaty following a national referendum, two government sources told Reuters after polls losed on Thursday.
While the German-led plan for stricter budget rules needs the approval of only 12 of the 17 euro zone countries to be ratified, an Irish rejection would have undermined one of Europe's key initiatives just as problems mount in Spain and Greece.
The referendum, Ireland's third on EU legislation in four years, put Dublin back in the spotlight after its implementation of an 85-billion euro ($106 billion) EU/IMF bailout had left others, notably Greece, the focus of euro zone debt concerns.
In corporate news, Xstrata Chief Executive Mick Davis will get a three-year deal worth almost 30 million pounds ($46 million) to stay at the helm once the miner joins forces with trader Glencore, a windfall likely to sow a shareholder storm at votes due in July.
In documents sent to investors on Thursday detailing the terms of the long-awaited $30 billion takeover bid by trader Glencore, Xstrata said it would pay retention deals to 73 of its key employees totaling more than 170 million pounds.
And shareholders of Air France-KLM and Safran voted against big pay-offs for chief executives at the part French state-owned groups. Four-fifths of Air France-KLM shareholders opposed a 400,000 euro sum paid to ex-CEO Pierre-Henri Gourgeon, who also received 1.125 million euros when he was ousted in October following the airline's poor performance. The stock lost 71 percent last year.