LONDON (SHARECAST) - -Merkel says banking recap only when supervisor is in place
-Merkel says joint EZ debt out of the question
-Merkel opposed to ESM being employed for legacy debts
-German CSU leader Seehofer says more time for Greece a possibility
-Spanish unions call general strike for November 14th
-Some link equity weakness to lack of a Spanish aid request
-Italian PM Monti says bank recap possible without ECB supervision
FTSE Mibtel 30: -2.0%
Ibex 35: -2.31%
Stoxx 600: -0.76%
European markets finished moderately lower on Friday, although the selling pressure in the periphery was clearly more pronounced. That on a day which has seen the news-flow coming out of the EU summit see-saw back and forth.
Early in the morning it seemed that agreement between Germany and France on the contentious issue of a banking union –which might pave the way for the direct recapitalization of banks- had not been achieved. That then gave way to reports to the contrary. There seemed to have been sufficient agreement for the European Stability Mechanism (ESM) to be able to recapitalise banks directly at some point next year, probably towards the next fall it seemed, although some reports pointed to the risk of a later date.
All of the above led analysts, such as those at Barclays Research, to comment that, “the result is a compromise between the German and the French position and we believe it is probably the best we could have expected before the summit.” Nevertheless, they admitted that there has been no clear arbitrage between the French and German positions.
As well, the issue of the so-called legacy debts seemed to remain unresolved.
Later on -in the afternoon- however Chancellor Merkel dismissed the possibility of the ESM being employed for legacy debts. Furthermore, she seemed to be insisting on a considerably slower pace of implementation of the banking union than some of her colleagues wished.
For now that means that either Spain muddles through until the banking union is in place or it will be forced to ask for a rescue in such a manner that the funds will end up on the sovereign’s balance sheet, a possibly worse outcome some fear.
Worth mention, some observers claim that Mrs. Merkel has been incensed by France’s unwillingness to incorporate the “fiscal compact” into its constitution.
Another point worth highlighting is that there was discussion about increasing the size of the common European budget, something which Barclays describes as “significant…on paper.”
The aim would seem to be to allow for so-called “fiscal transfers”, the lack of which is considered to be one of the main short-comings of the current set-up in the Eurozone by most experts.
Even so, Merkel reiterated that so long as there are independent national budgets then no debt-sharing is possible.
Good news for Italian banks
Meantime and on the corporate front, the Chief Executive of UniCredit, Italy's biggest bank by assets, said on Thursday he expects growth in bad loans for Italian lenders to be nearing its peak.
Valeo, the French auto parts maker said third-quarter sales rose 7% as its expansion in Asia and emerging markets more than offset slumping European demand.
From a sector stand-point the best performance in the DJ Stoxx 600 is now to be seen in the following industrial groups: Banks (-2.23%), Basic resources (-1.29%) and Insurance (-1.21%).
German price pressures slight above forecasts
German producer prices rose by 0.3% month-on-month (1.7% year-on-year) in September (Consensus: 0.3%, 1.6%).
Italian industrial orders incerased by 0.7% month-on-month in August, versus the 2.9% increase in the month before.
Single currency near unchanged
The euro/dollar is now down by 0.36% to the 1.3020 dollar mark.
Front month Brent crude futures are rising by 0.163 dollars to the 110.32 dollar mark.