Europe Economy

European Stocks Called Lower as Euro Crisis Talks Stall

European stocks were called to open lower on Thursday as investors look ahead cautiously to the summit of European leaders at the weekend, following reports that France and Germany are not in agreement over the European Central Bank's involvement in efforts to strengthen the European Financial Stability Facility (EFSF).

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The FTSE is called 45 points lower, the DAX in Frankfurt is expected to open down by 49 points and the CAC 40 is predicted to be lower by 20 points.

French President Nicolas Sarkozy left talks with Angela Merkel on Wednesday evening without commenting on what was discussed, but ahead of flying to Germany, Sarkozy told French policymakers that discussions between the euro zone's largest economies had faltered.  Disagreement is said to center around whether the European Financial Stability Facility (EFSF)should be turned into a bank with access to funding from the ECB, a move favored by France, but opposed by Germany and the ECB itself.

The FT reported on Thursday that European Union banks have a capital shortfall of less than 100 billion euros ($137.46 billion), well short of an IMF estimate of 200 billion euros and analyst estimates of a shortfall of up to 275 billion.  European leaders are set to ratify a plan based on stress tests carried out by the European Banking Authority at their Sunday summit.

Asian stocks followed losses in Wall St after Nicolas Sarkozy admitted talks between France and Germany over the strength and nature of the European bailout fund had stalled.  US shares were also hit by news from the Federal Reserve that economic activity in 12 major regions had improved modestly since the last Beige Book report.

The euro dipped against the dollar overnight as concerns grew that European leaders might not be able to agree on a decisive course of action to tackle the debt crisis when they meet on Sunday.  The common currency fell by 0.24 percent to $1.372 from the previous day's intraday high of  $1.3870.

The German government will present its economic forecast on Thursday, with Reuters reporting that coalition sources expect Economy Minister Philipp Roesler to revise his previous forecast of 1.8 percent growth for 2012 down to around 1 percent and a revision of his 2011 forecast to 2.9 percent down from three percent.

In Italy, Prime Minister Silvio Berlusconi is expected to nominate a replacement for Mario Draghi at the helm of the Bank of Italy.  The frontrunner to replace Draghi, who is set to take over from Jean Claude Trichet at the ECB, is Lorenzo Bini Smaghi, according to a Wall Street Journal report.

In London, UBS rogue trader Kweku Adobole is scheduled to appear before a magistrates court for his second committal hearing on Thursday.

Key corporate releases out of Europe on Thursday include Nokia third quarter data, which analysts are predicting will show further losses for the world's biggest mobile phone producer.

Swedish rival Ericsson beat expectations on Thursday posting core profit of $955 million, however the company's gross margin of 35 percent fell short of analyst predictions of 37 percent.

Nestle announced third quarter sales at 6:15, upping its sales growth outlook for the year after sales rose 7.3 percent, beating forecasts of 7.1 percent.  Price increases and strong sales in emerging markets helped boost sales for the world's largest food group.

Drink giant Pernod Ricard saw first quarter sales beat forecasts on Thursday with an 11 percent rise in underlying sales.  The world's second largest liquor producer said it was aiming for a rise of around 6 percent in underlying profit for the year to June 2012 after achieving an 8 percent profit increase in 2010/11.

French firm Schneider Electric reported a 7.7 percent rise in third quarter sales early Thursday and said it was set to meet its sales growth target for the year.

Economic data on Thursday will focus on Germany, where PPI data is released at 7:00 UK time and UK retail sales figures are released at 8:30.