European Shares to Edge Higher; G20 Calls for EU Action
European shares were called to open slightly higher on Tuesday on hopes of a resolution to the euro zone debt crisis as leaders from the world’s 20 biggest industrialized nations met in Mexico and Greece looked closer to forming a coalition government following elections on Sunday.
The FTSE was seen opening 16 points higher at 5507, the DAX was expected to open 7 points higher at 6255 and the CAC 40 was called to open 8 points higher at 3074.
The euro zone debt crisis and Greece’s continued membership of the single currency dominated talks at the latest G20 Summitin Los Cabos in Mexico with world leaders piling pressure on their European counterparts to take decisive action to resolve what they see as the biggest current threat to the global economy.
The scale of the crisis was highlighted by a report in the Financial Times that Russia was setting aside up to $40 billion to shore up its own economy in the event contagion from Europe spreads east. The government is also drawing up plans to recapitalize the country's banking system.
U.S. president Barrack Obama met with German chancellor Angela Merkel on Monday, while a draft communiqué urged bold action on the crisis.
Europe will be urged to take "all necessary policy measures" to solve a crisis that has now raged for over two years.
Elsewhere during the Summit, Obama and Russian president Vladimir Putin agreed the violence in Syria had to end but offered no new solutions and showed no signs of healing a rift over whether to impose tougher sanctions on Damascus.
In Greece those political parties broadly supportive of the country's international bailout will agree to form a coalition government on Tuesday, a senior official with the conservative New Democracy party that won the most votes in Sunday’s election told Reuters.
"We are going to clinch a deal tomorrow, we will form a government," the official, who declined to be named, said.
The official said the Socialist PASOK party would appoint members in the next cabinet and also expressed hope that the Democratic Left, a small, moderate leftist party, would take part.
Spain will be watched closely later on Tuesday morning– and again on Thursday - as it is expected to have to pay record prices to borrow at debt auctions after the Greek election failed to ease concerns about the future of the euro zone and uncertainty over whether Madrid will need a full sovereign bailout persisted.
The yield on Spanish 10-year bonds hit a fresh high above 7 percent on Monday as initial relief over the victory of pro-bailout parties in Greece waned.
Italy, which has also seen the yield on its sovereign debt spike in recent days as markets hunted for the next victim in the euro zone crisis, will call for a semi-automatic mechanism involving the European Central Bank or the permanent bailout fund to reduce spreads of euro zone bonds over Germany at a meeting of European finance ministers later this week, Italy's European affairs minister Enzo Moavero said on Monday.
Italy has long complained about the rising returns that investors demand to hold its debt rather than benchmark German bonds, saying markets were not fully taking into account its reforms.
Italy's benchmark 10-year bond yields rose to 6.06 percent on Monday, taking the additional return compared with German Bund to 4.63 percentage points.
Asian shares slipped on Tuesday as the Greek election relief rally quickly ran out of steam, with rising Spanish and Italian bond yields also weighing on investors sentiment.
The euro steadied but remained just below $1.26, well off the high of $1.2748 seen in early Asian trade on Monday when markets had cheered the narrow election victory for the pro bailout parties that support Greece's international bailout deal.
In U.S. corporate news, Oracle posted stronger-than-expected quarterly profit, releasing the results three days ahead of schedule after news of the departure of a senior sales executive fueled concerns that business was stagnating.
Keith Block, executive vice president for Oracle's sales and consulting groups in North America, is leaving the company, a person familiar with the matter told Reuters.
Microsoft showcased its line of tablet computers on Mondayat a press event in Los Angeles, marking a major shift for the software giant as it struggles to compete with Apple and re-invent its aging Windows franchise.
The new tablet line, named Surface, includes a consumer device aimed directly at the Apple iPad, and another, larger machine designed to run the full suite of Windows software. Both include a keyboard that doubles as a cover for the device, and both will be powered by versions of the new Windows 8 operating system.
Meanwhile, Facebook is paying $55 million to $60 million to buy Face.com, people familiar with the matter told Reuters, a company that provides the facial-recognition technology to help users identify and tag photos.
Facebook will pay cash and stock for Face.com, potentially paying as much as $60 million, two sources with knowledge of the deal said.