European Shares to Open Mixed; Global Growth Fears Weigh
Associate Editor, CNBC
European markets were set for a mixed open on Wednesday as fears the economic slowdown would feed into second-quarter corporate earnings increased and investors remained unconvinced the euro zone could get its house in order to bring down the borrowing costs of countries such as Spain and Italy.
The FTSE was called lower by 26 points at 5638, the DAX was seen lower by 29 points at 6409 but the CAC 40 was expected to open 16 points higher at 3159.
U.S. stock markets fell for a fourth straight day on Tuesday as engine manufacturer Cummins issued a profit warning after reporting a slump in quarterly sales which came on top of weak forecasts from Applied Materials and Advanced Micro Devices.
Cummins blamed the stronger dollar, weak domestic orders from truck and power generation customers and lower demand from emerging markets.
Investor sentiment was also dented after Fitch Ratings reaffirmed its AAA credit rating on the U.S. but also maintained its negative outlook, citing a diversified and wealthy economy that was undermined by the government's inability to agree on deficit reduction measures.
Fitch said it did not expect to lift the negative outlook until late 2013.
In Europe, Italy said on Tuesday it may want to tap euro zone aid to ease its borrowing costs as finance ministers struggled to convince markets they were getting a grip on the currency bloc’s debt crisis.
"It would be hazardous to say that Italy would never use (this mechanism)," Monti said after a meeting of European finance ministers in Brussels.
"Italy may be interested." Spain's savings banks could be forced to sell their controlling shares in commercial lenders and list some of them, as a condition of receiving a 100-billion euros ($122.5 billion) aid package.
"The Spanish authorities will prepare by end-November 2012 legislation clarifying the role of savings banks in their capacity as shareholders of credit institutions with a view to eventually reducing their stakes to non-controlling levels," a memorandum of understanding drawn up following a meeting of euro zone finance ministers earlier this week and obtained by Reuters said.
"Moreover, authorities will provide by end-November 2012 a roadmap for the eventual listing of banks included in the stress test, which have benefited from state aid as part of the restructuring process," the memorandum continued.
Holders of hybrid capital and subordinated debt in state-rescued banks will have to take a haircut on their investments in order to minimise the cost to taxpayers of the banks' restructuring, Reuters added.
The banks will also have to segregate loss-making property assets into a bad bank, with the Spanish government eventually liquidating assets that are no longer viable.
Elsewhere shareholders in Barclays Bank called for the appointment of an external chairman to repair the bank's reputation after the London Interbank Offered Rate (Libor) scandal which led regulators to impose a fine of more than $450 million, the Financial Times reported.
Sir Michael Rake, now deputy chairman of Barclays, has been touted to succeed the outgoing Chairman Marcus Agius, who headed the board when its traders allegedly manipulated the rate.
Three of Barclays' top 10 investors told the FT that it would be unacceptable for the chairman to be an internal appointment.
Meanwhile U.S. lawmakers are launching their own probe into Libor manipulation, widening the focus beyond the Bank of England to include regulators in the U.S. Senate Banking Committee chairman Tim Johnson said on Tuesday his staff had started to schedule "bipartisan briefings with relevant parties" to learn more about the Libor allegations.
ICAP chief executive Michael Spencer could get a grilling from shareholders at the broker's annual meeting on Wednesday on the finance sector outlook and whether the firm could be dragged into the Libor scandal.
Brokers like ICAP match the buyers and sellers of many Libor-based financial products such as interest rate swaps. Their customers include the 18 banks that set the Libor rate.
Shares in ICAP, the world's biggest inter-dealer broker, have been under pressure for the last year but dropped to their lowest for more than two years after Barclays was fined over the interest fixing scandal and Bob Diamond quit as the UK bank's chief executive.