European Shares to Open Higher on China GDP Relief
European shares were called to open higher on Friday, tracking shares in Asia higher on relief that figures for second-quarter Chinese economic growth came in within expectations.
The FTSE was seen opening 27 points higher at 5635, the DAX was called to open higher by 50 points at 6469 and the CAC was seen higher by 24 points at 3159.
China’s second quarter gross domestic product (GDP)rose at a rate of 7.6 percent, in line with analysts’ expectations but at its slowest rate since the first three months of 2009, official figures from the National Bureau of Statistics showed on Friday morning.
Back in Europe, Moody’s Investors Service downgraded Italian sovereign debtby two notches to Baa2 and warned it could cut further, just hours before the country launched its latest bond sale.
The rating downgrade places Italian sovereign debt just two notches above junk status and could significantly increase already record high borrowing costs for the country.
Italy issues BTP bonds maturing in 2015 later on Friday.
Moody’s warned of Italy's vulnerability to political shocks in the euro zone the possibility of a material deterioration in the country’s economic prospects and difficulties implementing economic reforms.
In the UK,the Libor rate-fixing scandal deepensas evidence emerged that U.S. Treasury Secretary Timothy Geithner wrote to the Bank of England in 2008 voicing his concerns about risks relating to the London Interbank Offered Rate.
Geithner sent a memo to London, U.S. regulators also began voicing concerns about possible distortions of Libor and heir impact.
Among six recommendations made by Geithner was a call for greater governance of the market.
He suggested the British Banking Association, which sets the Libor based on data submitted by different banks, issue best practice guidelines and randomly collect qoutes from banks in order to help eliminate incentives to “mis-report” rates.
The revelation came as it also emerged the 11 global banks so far linked to the Libor scandal may face $14 billion in regulatory and legal settlement costs through 2014.
Estimates by Morgan Stanley analysts suggested the damping effect that rate-rigging accusations may have on market share and activity would mean earnings and book value could be reduced even further.
The analysts estimated regulatory penalties could reduce 2012 earnings per share by anywhere from 2 percent to 33 percent for Bank of America,Citigroup,JPMorgan, CreditSuisse, UBS,DeutscheBank,SocieteGenerale, RoyalBankof Scotland, HSBC and Lloyds Banking Group.
Meanwhile other banking regulators were looking at whether other inter-bank lending rates specifically Eurobor (Euro Interbank Offered Rate) had been manipulated in a similar way to Libor.
German bank supervisor BaFin was the first to start investigations, people close to the investigations told Reuters.
International Monetary Fund (IMF) managing director Christine Lagardesaid was far too early to consider expanding the Greek financial bailout or extending its terms, in an exclusive interview with CNBC on Friday.
It is "way premature to discuss extension, to discuss additional financing," Lagarde told CNBC.
She praised the "change in attitude" by the new Greek government toward fulfilling its requirements under the bailout led by the IMF, the European Union and the European Central Bank, but "implementation must happen, more than lip-service."
Later on Friday, investors will turn their attention to the United States where JPMorgan will report second quarter earnings, the first opportunity investors will have to review the impact of the estimated $2 billion derivatives trading loss at the bank.
Uncertainty over the effects of the losses by the trader known at the banks as the ”London Whale” has led some investors to bet on larger-than-normal share price fluctuations on Friday.
Over the last two years, JPMorgan shares tended to rise or fall by about 2 percent after results were announced. This time, options investors expect a move of more than 4 percent.