Markets Stutter on EU Summit Pessimism
Published: June 27, 2012 (Issue # 1715)
LONDON — Concerns over the ability of Europe’s leaders to agree a package of measures to deal with their debt crisis kept stock markets in check Tuesday, a day after Cyprus became the fifth euro country to ask for financial assistance from its partners in the currency zone.
On Thursday, European Union leaders meet in Brussels for another summit, and expectations of a significant change in policy are low, even after top European officials, including European Central Bank President Mario Draghi, touted the benefits of jointly-issued eurobonds, which have been backed by France, Spain and Italy, among others.
In a document published on Tuesday, they proposed issuing medium-term debt backed by all countries and a banking union with a single authority that would insure banking deposits and have the power to recapitalize banks directly.
However, Germany remains reluctant to accept the idea of eurobonds or a banking union since such moves would expose it more to the debt risks of weaker countries. Germany also worries that Europe’s indebted countries would have less reason to fix their public finances.
On Monday, German Chancellor Angela Merkel indicated that she wasn’t planning to change her position.
“She did not mince her words, and if anyone had previously doubted her resolve to stick to her course then those doubts may well have been removed,” said Gary Jenkins, managing director at Swordfish Research. “One would imagine that any optimism amongst officials that this week could see short-term measures introduced to help calm the market disappeared with every word Merkel spoke.”
After suffering heavy losses on Monday, European indexes failed to rebound significantly. Germany’s DAX was up 0.1 percent at 6,143, while the CAC-40 in France was down 0.3 percent at 3,014. The FTSE 100 index of leading British shares was 0.1 percent higher at 5,456.
The euro also was lackluster, trading 0.2 percent lower at $1.2484.
Wall Street failed to change the mood, especially after a downbeat consumer confidence survey. The Conference Board’s main confidence index fell to 62 in June from a downwardly-revised 64.4 the month before. That was the fourth straight decline and provides further evidence that the U.S. economy is faltering.
The Dow Jones industrial average was down 0.1 percent at 12,493 while the broader SP 500 index was 0.1 percent higher at 1,315.
Also limiting any market recovery was the news that Spain had to pay substantially higher rates to borrow 3.1 billion euros ($3.9 billion) after Moody’s downgraded 28 of the country’s banks.
Meanwhile, Cyprus made an official request to tap Europe’s bailout fund for money to support its banks. Cyprus has not yet asked for a specific amount, but analysts estimate it will be between 5 billion and 10 billion euros.
“After three days of negative trading, European sentiment is stopping any major rally from happening,” said Simon Furlong, a trader at Spreadex.
Earlier, Asian markets mostly closed lower amid worries over Europe’s debt crisis.
Japan’s Nikkei 225 index fell 0.8 percent to close at 8,663.99, while South Korea’s Kospi was 0.4 percent lower at 1,817.81. But Hong Kong’s Hang Seng rose 0.5 percent to 18,981.84.
Oil markets were subdued, too, with benchmark crude up 14 cents at $79.35 in electronic trading on the New York Mercantile Exchange.