European Shares Seen Flat; Spain Gets More Time on Deficit
European shares were seen opening flat on Tuesday after euro zone finance chiefs agreed to give Spain an extra year to cut its budget deficit to 3 percent, while European Central Bank (ECB) President Mario Draghi left the door open to a further cut in euro zone interest rates if economic conditions worsened.
The FTSE was called to open 6 points higher at 5632, the DAX was seen lower by 2 points at 6385, while the CAC40 was expected to open 4 points higher at 3161.
A meeting in Brussels of euro zone financechiefs on Monday agreed to allow Spain more time to get its budget deficit under control by extending a previously agreed deadline by one year to 2014.
The move came after Spanish bond yields spiked earlier in the day as fears Spain would need a full sovereign bailout continued to weigh on market sentiment. A bailout loan for Spain’s banks, which have been crippled by bad debts stemming from the collapse of the country’s housing market, will be signed on or around July 20.
The size of the bailout fund has still to be finalized with some 100 billion euros available to Spain’s banks, but 30 billion euros will be available could be accessed by the end of the month if there was an urgent need.
Ministers also agreed that once a single European banking supervisor had been set up next year, Spanish banks could be directly recapitalized from the euro zone rescue fund without requiring a state guarantee.
In the UK, the Bank of England's deputy governor, Paul Tucker, strongly denied suggestions on Monday that government ministers had pressured him to encourage banks to manipulate the London interbank offered rate (LIBOR) during the height of the financial crisis in 2008.
Tucker’s emotional testimony came before that of Barclays chairman, Marcus Agius, who will face questions from British lawmakers on Tuesday about what he knew about the scandal.
The departure of a third senior executive at Barclays in as many days was also announced on Monday. Martin Kelly, Barclays global head of financial control, will join Apollo Global Management as its next chief financial officer.
Aluminum giant Alcoa kicked off earnings season in the U.S. with second quarter revenue and profit that beat expectations despite aluminum prices sitting near two-year lows.
Earnings ex-items were 6 cents per share versus forecasts of 5 cents per share. Revenue stood at $6 billion for the quarter versus expectations of $5.8 billion.
Alcoa forecast strong demand in the aerospace and auto sectors. Chief executive Klaus Kleinfeld said low metal prices were a result of the global economic malaise rather than any fault with market fundamentals.
Intel is to acquire 15 percent of Dutch microchip maker ASM for $4 billion and will fund its research into costly next-generation chipmaking technology it said on Monday, sending the firm’s U.S. shares up 6 percent.
Intel will acquire an initial 10 percent stake in its European supplier and tack on another 5 percent if it wins shareholder approval, for a total of about $3.1 billion.
Norway's government ordered a last-minute settlement on Monday to a dispute between striking oil workers and employers to alleviate market fears over a full closure of its oil industry anda steep cut in Europe's supplies.
The strike over pensions had kept crude prices on the boil with analysts expecting far quicker action by the government to stop the oil industry from locking out all offshore staff from their workplaces from midnight on Monday.
Meanwhile, BP has indefinitely suspended a $1.5 billion offshore oil project in Alaska due to cost overruns and technical setbacks, a company spokeswoman said on Monday.
An 18-month company review concluded that the Liberty project, a field with about 100 million barrels of recoverable oil, should not go forward as planned.
Royal Bank of Scotland and two other banks have abandoned talks on restructuring Dubai Group's $10 billion debt and threatened to bring unprecedented legal action against the investment vehicle of Dubai's ruler, sources close to the matter told Reuters.
The walkout by RBS, German lender Commerzbank and South Africa's StandardBank at the beginning of June could prevent a deal for the entire restructuring just as an initial agreement is about to be circulated to other banks, five sources said.