Europe Economy

European Shares to Open Mixed; UBS Results Miss Expectations


European shares were expected to open mixed on Wednesday following the May Day holiday in a week that is expected to see light trade across global markets.

The FTSE 100 seen opening 15 points lower, while France’s CAC 40 is seen opening 27 points  higher and Germany’s DAX up 48 points.

UBS announced earnings of 827 million Swiss francs, ($910 million), well below analyst expectations of around 1.1 billion Swiss francs, on Wednesday morning. The bank added it was on track to achieve 2 billion Swiss francs of cost savings. But a significant number of investors are preparing to confront the management of the bank on Thursday, according to a report in the Financial Times. Investors are expected to vote against the Swiss bank's 2011 pay award and deny executives formal approval of their actions, the newspaper reported on Wednesday.

Meanwhile, probes into phone hacking and the legacy of a failed bid by Rupert Murdoch to seize full control look likely to overshadow a resilient set of results from satellite broadcaster BSKyB on Wednesday.   

BSkyB, already 39 percent-owned by Murdoch's News Corp, was dragged firmly into the center of the hacking storm engulfing Murdoch's British newspaper business when its Sky News channel admitted last month that it hacked into emails on two occasions.  

Murdoch's son, James, was chairman of BSkyB when the scandal first broke and its shares have subsequently lost almost 20 percent of their value, despite continued growth of the business and moves to placate disgruntled shareholders.       

BSkyB last year announced it would hand 1 billion pounds back to shareholders via a buyback, and James Murdoch, once tipped as heir apparent to his father's media empire, last month quit his chairmanship.

Bolivia's leftist President Evo Morales marked May Day on Tuesday by nationalizing the local unit of Spain's Red Electrica, ratcheting up tension between the former colonial power and South American governments eager to assert control over energy resources. 

Morales ordered the army to take over the Cochabamba headquarters of the power transmission company known as TDE. The move came two weeks after Argentina unveiled a plan to take control of the country's No. 1 oil company, YPF, from majority shareholder Repsol, based in Madrid.  

Morales said the TDE nationalization stems from the company's lack of investment in Bolivia. Argentina used a similar justification for its takeover of YPF, a unit of Repsol. 

Elsewhere EU finance ministers will attempt to reach a deal to force European banks to set aside more capital to cushion losses on Wednesday, with Britain and Sweden demanding even stricter rules than those on the table. 

The EU's 27 members are divided over how much capital lenders should have to set aside to cover risks, one of the central questions raised by a five-year-long financial crisis that toppled dozens of banks in Europe and the United States. 

Denmark, holder of the bloc's six-month rotating presidency, has stepped up efforts to find a deal. 

“This is a very important lesson from the crisis. I see a strong willingness to compromise but the countries have very different opinions," Denmark's economic affairs minister, Margrethe Vestager, said.  

In France, Nicolas Sarkozy attempted to rally support ahead oft this weekend’s second round presidential election with opinion polls in France still pointing to his defeat and the election of his Socialist party rival Francois Hollande.

French far-right leader Marine Le Pen delivered a further blow on Tuesday to Sarkozy's hopes of re-election by refusing to endorse him and telling her six million supporters to make their own choice at Sunday's ballot. She herself said that she will cast a blank ballot.

Sarkozy needs many of the 17.9 percent of voters who chose National Front leader Le Pen last week to switch to backing him in the runoff if he is to overcome first-round winner Hollande.

Asian shares edged higher and the dollar recovered against the yen on Wednesday after strong U.S. factory activity data eased concerns about a loss of momentum in the world's biggest economy.  MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2 percent, following an overnight rally on Wall Street. The Dow Jones industrial average closed on Tuesday at its highest level in more than four years.

China's manufacturing sector shrank for the sixth month running in April, according to a survey on Wednesday that showed a continued divergence between China's larger, predominantly state-owned enterprises and smaller, private firms. 

The HSBC China Purchasing Managers' Index, geared to smaller firms, improved to 49.3 in April from 48.3 in March, but remained below the threshold of 50 that divides expansion from contraction. Still, it showed that the rate of deterioration had slowed following a difficult first quarter when economic growth hit its slowest pace in nearly three years. 

By contrast, the government's official manufacturing PMI, largely indicative of bigger firms, rose to a 13-month high of 53.3 in April, figures on Tuesday showed, thanks to stronger output. The March reading was 53.1.