European Shares Seen Edging Higher as Investors Bargain Hunt
European shares were called to open slightly higher on Wednesday as bargain hunters sought cheap stocks on the back of recent falls caused by fears that the Spanish bailout might lead to a further spread of contagion in the euro zone debt crisis.
The FTSE was called to open 2 points higher at 5476, the DAX was seen opening 28 points higher at 6189 and the CAC 40 was expected to open higher by 15 at 3062.
Investor fears that Spain may not be the last euro zone country to need a bailout eased a little on Tuesday after Standard & Poor’s told Reuters that Italy's banks were not in a situation similar to Spain's banks because they have much less exposure to the property market.
"We don't think Italian banks are in a similar situation (to Spain's) because their exposure to the real estate sector is more contained, and also because we don't see the risk of a sharp decline in Italian real estate prices like there was in Spain," S&P's primary credit analyst Renato Panich said.
Italian banks are suffering from sovereign debt pressure, which is weighing on their access to funding markets, she added.
But that view was contradicted by founding partner and president of Egan-Jones., Sean Egan, who told CNBC Asia that he believes Spain and Italy would each need a full-scale bailout from the EU because of the high level of their deficits and the credit worthiness of their banks.
Egan predicted both countries would seek a full scale bailout within the next 6 months.
Those views appeared to be echoed by Austrian finance minister Maria Fekter in a domestic television interview late on Monday in which she suggested higher borrowing costs could prompt a financial rescue of Italian banks next.
Italian prime minister Mario Monti reacted angrily on Tuesday, saying it was “totally inappropriate” for a minister of another country to comment on Italy’s economic situation.
In Spain politicians will get their first chance to question prime minister Mariano Rajoy on Wednesday over the terms of the 100 billion euro ($126 billion) bailout from the European Union (EU) for local banks.
Rajoy has so far resisted calls to go to the Spanish parliament to debate the terms of the bailout with opposition parties until those terms have been finalized later this month.
The opposition will however have the opportunity to put questions to the prime minister as usual on Wednesday where the focus will be firmly on the bailout terms.
A European Commission spokesman told Reuters on Tuesday that Spanish banks that receive public loans in the form of convertible shares as part of the bailout deal can expect to pay least 8.5 percent in interest.
"According to the Commission's practice in applying state aid rules to the banking sector, any aid given to banks in the form of hybrid capital instruments convertible into bank shares must be charged at a minimum interest rate of 8.5 percent," Antoine Colombani, spokesman for EU Competition chief Joaquin Almunia said.
The European Central Bank (ECB) stands ready to act should the situation in the euro zone deteriorate further, the ECB Vice-President Vitor Constancio told CNBC on Tuesday.
"We (ECB) are still very much on top of the situation," Constancio told CNBC’s Closing Bell after presenting the ECB's latest Financial Stability Review.
"As the (ECB) president said in the last press conference, we stand ready to provide liquidity and we are ready to face whatever may occur," he added.
Meanwhile, UK finance minister George Osborne said Greece may need to leave the euro zone in order for the German government to be able to convince its voters that they need to stand behind the single currency.
"I just don't know whether the German government requires a Greek exit to explain to their public why they need to do certain things like a banking union, eurobonds and things in common with that," the Times reported Osborne as saying.
In Greece, the leader of the leftist Syriza party ruled out entering into a government with pro-bailout parties after elections on June 17, which are likely to determine the country’s future in the euro zone.
Alexis Tsipras said that, if elected, he would lead a government of the left against the austerity measures demanded by the EU and the International Monetary Fund.
Asian shares rose on Wednesday, following gains in European and U.S. markets, where bargain hunters bought beaten down stocks, but markets remained vulnerable to the euro zone's debt woes as Spanish yields hit record highs on worries over banks.
In corporate news, JPMorgan Chase Chief Executive Jamie Dimon is expected to tell U.S. lawmakers his bank's recent multibillion-dollar trading loss occurred because poorly managed traders embarked on a misguided hedging strategy they did not fully understand.
In written testimony prepared for a hearing on Wednesday Dimon provided a few more details about the trading loss.
However he refused to reveal whether the losses have increased since the initial $2 billion estimated loss was announced last month.
And ING has reached a $619 million out-of-court settlement with the U.S. government over allegations that it violated sanctions imposed on Cuba, Iran and others countries.
The government alleged that ING moved $1.6 billion illegally through banks in the U. S. from the early 1990s through 2007 by concealing the nature of the transactions.
ING is the fourth company to settle. The fine is the biggest ever against a bank for sanctions violations, officials said.