European Stocks Seen Higher as Investors Eye Central Banks
European shares were called to open higher on Friday following a report from Reuters indicating central banks across the world are ready to provide liquidity to global markets if Sunday’s Greek election result is inconclusive or sees anti-austerity parties take power.
The FTSE was called to open 21 points higher at 5488, the DAX was seen opening 29 points higher at 6168 and the CAC 40 was expected to open 22 points higher at 3054.
Central banks from the world’s major economiesstand ready to stabilize financial markets by providing liquidity to prevent a credit squeeze if the outcome of Greek elections on Sunday causes volatile trading, G20 officials told Reuters.
A senior U.S. official told Reuters that the Greek election will not provide "the definitive signal on what happens next" in the euro zone debt crisis.
But if severe market strains emerge after an unusual convergence of three elections this weekend - Egypt and France go to the polls as well - central bankers are on standby to ensure enough cash is flowing through the financial system.
"The central banks are preparing for coordinated action to provide liquidity," said a senior G20 aide familiar with discussions among international financial diplomats. His statement was confirmed by several other G20 officials. It should be noted that G20 officials to not speak for the world’s leading central bankers.
Wall Street stocks jumped sharply on the news, with the S&P 500 and the Dow Jones up more than 1 percent. The euro added to gains and U.S. government debt prices fell, boosting yields.
Asian shares also edged up on Friday, and the euro held most of the previous session's gains in early trade.
The news followed a call from the Institute of International Finance (IIF) on Thursday for coordinated monetary-policy easing from the ECB, Federal Reserve and key emerging-market central banks.
The IIF said the European Union (EU) and the International Monetary Fund (IMF) should loosen deficit-cutting goals for Greece and lengthen bailout-loan maturities. It added Greece may need 20 billion to 30 billion euros ($25.2 billion to £37.9 billion) in additional bailout money and called for the IMF to take a more-active role in solving Europe's crisis, including signalling it is open to precautionary loan.
Elsewhere, Spain's EU bank bailout last weekend galvanized growing German and French support for the ECB to take over responsibility from the European Banking Authority for monitoring Europe's biggest lenders.
France is calling for a banking union to help draw a line under the euro zone sovereign debt crisis and try to break the link between fragile banks and indebted governments. Paris wants the ECB to have oversight of the region's banking sector, a position Berlin increasingly supports.
In the UK, the government and central bank plansto flood Britain's banking system with more than 100 billion pounds ($155.43 billion), in the hope that banks will increase lending to small businesses and the country can escape its second recession in four years.
In his annual Mansion House policy speech to London financiers on Thursday, Bank of England governor Mervyn King said the Bank would launch a scheme to provide cheap long-term funding to banks to encourage them to lend to businesses and consumers.