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FTSE, CAC, DAX Seen Flat After Italian Downgrade

European stocks are expected to struggle to find direction at the European open as hopes of further policy action by US and European authorities to boost growth are offset by more bad news on the euro zone debt crisis.

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The FTSE 100 is expected to open lower by 5 points, the DAX is called down by 10 points and the CAC 40 is seen unchanged.

Weak housing data from the US on Wednesday renewed hopes the Fed would offer support for the world’s largest economy via fresh extraordinary measures. In its Thursday edition French newspaper El Pais reported the ECB is also considering implementing palliative measures to ease the pressure on Spain and Italy, both of who have seen their borrowing costs soar in recent sessions.

Late on Wednesday credit rating agency Egan-Jones cut Italy’s sovereign rating to CCC-plus from B-plus citing the debts of regional governments, banking sector weakness and a weak economy.

"Italy's independent ability to support its banks is questionable given the country's and banks' weak condition” said the ratings agency in a statement.

Adding the pressure on the euro zone is a research note from Citi chief economist Willem Buiter predicting a 90 percent chance of Greece exiting the euro zone, within two to three quarters.

"Our base case is for prolonged economic weakness and financial market strains in periphery countries, spilling over into renewed recession for the euro area as a whole this year and the next” said Citi

It will be a very busy day for corporate earnings in Europe with ABB already reporting in Zurich. The engineering giant missed expectations for the second quarter due to a strong Swiss Franc but predicted better times ahead due to positive developments in the Chinese and US markets.

Contact Europe: Economy

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