Markets Remain Subdued Ahead Of EU SummitJune 27th, 2012 10:20 am Associated Press
LONDON (AP) — Financial markets were subdued Wednesday as investors remained cautious over the prospect of any meaningful debt crisis breakthrough at a summit of European leaders later this week.
With German Chancellor Angela Merkel continuing to voice her opposition to the prospect of jointly-issued eurobonds, investors doubt anything substantial will emerge at the two-day summit in Brussels that starts Thursday.
Many experts say eurobonds are the answer to the eurozone’s problems as they would allow help lower indebted countries’ borrowing costs, easing the risk they may need a bailout. But Germany is reluctant to expose itself to new potential costs and is concerned that eurobonds may ease the pressure on countries like Greece and Spain to reform their economies.
“A few brave souls have edged into the market, but enthusiasm is distinctly lacking, as most traders opt to hold their ground and wait to see what decisions, if any, emerge from the eurozone summit,” said Chris Beauchamp, market analyst at IG Index. “In a way, it would be hard to lower expectations any further, since we have been here many times before, but there is a sense that this time the fallout from any apparent lack of progress will be severe.”
The run-up to this summit is distinctly different to previous ones over the past two years when investors got ahead of themselves, anticipating game-changing conclusions, only to be disappointed.
Though little is expected from the summit, some traders think the European Central Bank may take more aggressive action to ease the crisis.
“If the eurozone meeting does not bear any fruit, there will be anticipation of coordinated central bank intervention and a slashing of ECB rates on July 5,” said Mike McCudden, head of derivatives at Interactive Investor.
McCudden said a third round of super-cheap long-term loans from the ECB may be in the cards. The second round last December helped stabilize financial markets in the early part of this year.
Given the uncertainties, investors were reluctant to stake out positions on Wednesday morning in Europe.
Germany’s DAX was up 0.1 percent at 6,142 while the CAC-40 in France rose 0.2 percent to 3,020. The FTSE 100 index of leading British shares was 0.3 percent higher at 5,463.
The euro was also roughly unchanged at $1.2490.
Wall Street’s open is not expected to alter the market mood, with both Dow futures and the broader S&P 500 futures down 0.1 percent. U.S. stocks ended modestly higher Tuesday after a report showed that U.S. home prices rose 1.3 percent in April, the first increase in seven months and an uptick in a sector closely tied to the health of the overall economy.
Earlier in Asia, Japan’s Nikkei 225 gained 0.8 percent to close at 8,730.49 while Hong Kong’s Hang Seng rose 1 percent to 19,176.95 and South Korea’s Kospi was nearly unchanged at 1,817.65.
Mainland Chinese shares were mixed. The Shanghai Composite Index fell for a sixth straight trading day, down 0.2 percent to 2,216.93. The Shenzhen Composite Index rose marginally to 918.38.
Oil prices remained under pressure amid the uncertainty surrounding the eurozone. Benchmark oil for August delivery was down 40 cents at $78.99 a barrel in electronic trading on the New York Mercantile Exchange.
Pamela Sampson in Bangkok contributed to this report.