Markets focused on support for European banks

DESPITE a positive surprise on the all-important non-farm payrolls number from the US on Friday, beating the vast majority of analysts’ estimates, American stock indices still closed with a negative bias on the day.

The gains in hiring workers were still not enough to offset the unemployment rate, which remained high at 9.1 per cent.

The open of European shares this morning is also likely to be dominated by the markets digesting developments from weekend negotiations in Berlin of possible financial support for European banks.

GFT quotes two-way prices on stock indices around the clock, even when the underlying markets are closed. The FTSE 100 index is called to open down 10 points at 5,293. Germany’s DAX 30 index is expected to open down 18 points at 5,657, and the French CAC 40 is forecast to open lower by 7 points at 3,087.

The concern now is that European banks could be in the midst of a capitalisation crisis, following the fall of Franco-Belgian bank Dexia, with France seen as particularly exposed to Greek, Italian and Spanish credit issues.

A compromise being worked on between France’s President Sarkozy and the German Chancellor Merkel – who held a working dinner together in Berlin last night – seems on the cards before the end of the month, whereby a cut in Greek debt beyond the 21 per cent agreed in July could be combined with a refinancing of the EFSF bailout fund by the European Central Bank, although traders may be disappointed with the lack of any immediate recapitalisation details being announced.

A meeting this Friday of the G20 finance ministers will also be watched for appetite for bailout support from outside of the Eurozone. Martin Slaney is director of global dealing operations at GFT.