Posted on | May 30, 2012 | No Comments
London shares lost ground throughout the morning as fears of a Spanish bailout gripped investors.
However, there was a brief flurry of excitement as a rehashed story from the Wall Street Journal yesterday caused markets to shoot up.
A report from the European Commission said that it recommended direct bank recapitalisations of troubled institutions via the European Stability Mechanism (ESM). This was a rescue fund set up last year to provide long-term funding for distressed countries.
Direct rescues of banks would help stem the current crisis, given the Spanish rescue of Bankia is falling apart. The commission also said that it supported the establishment of a banking union to help divide losses across the currency union.
The news saw the FTSE jump by 50 points, while European markets also rallied and US futures pared losses.
The euphoria didn’t last however, and spread betting markets gave back their gains as everyone realised the key problem with the plan, Germany.
Any currency-wide union or recapitalisation plan would require more money from the Eurozone’s strongest economy and Germany is, understandably, not very keen on giving away more money. As a result, the plan is likely to remain gathering dust on the shelf like so many before it.
Markets across Europe remain in negative territory and US markets are expected to open sharply lower.
The Dow and S&P 500 are expected to open down by around 90 points and 10 points respectively.
US pending home sales is the only notable data due out today so, with nothing to distract attention, Europe will likely remain in the spotlight.
By Chris Beauchamp, Market Analyst, IG Index.
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