European shares edged up today but the euro was flat, with investors increasingly cautious a day ahead of an EU leaders summit that few expect will do much to resolve the region's debt crisis, now in its third year.
US stock index futures were also pointing to a mostly flat start on Wall Street, while oil, gold and copper edged lower, with all markets reluctant to advance before the June 28-29th summit in Brussels.
German chancellor Angela Merkel is due to meet new French president Francois Hollande later to try to hammer out a common line to take to the meeting, but her reported comments that debt sharing across the euro area would not happen in her lifetime dashed hopes of a breakthrough.
"The disillusionment is palpable at the moment because, whatever happens over the next couple of days during this summit, no one is expecting anything concrete to come out the other side," said Richard Hunter, head of UK Equities at Hargreaves Lansdown.
The euro was barely changed at $1.2495, recovering from the fall to a two-week low of $1.2441 yesterday, which was its lowest level since June 8.Markets had been hoping this week's summit would deliver at least a high-level agreement on greater fiscal and financial integration across the euro area that could then ultimately lead to the issuance of common euro bonds.
There were also hopes that Europe's bailout funds, the European Financial
Stability Facility and the soon to be launched European Stability Mechanism, could use their money to ease the pressure on peripheral
debt markets.
But Dr Merkel's rejection of the idea of mutualising the region's debt burden - favoured by France, Italy and Spain -, saying Europe would not share total debt liability "as long as I live", signalled that deep divisions remain, though Germany is expected to offer some flexibility on the use of bailout funds.
Following sharp falls last week and Monday as hopes for a quick solution to Europe's crisis at the summit faded, stock markets around the world have steadily recovered.
Rises in US equities yesterday and across Asia earlier lifted the MSCI world equity index by 0.3 per cent to 301.86 points, though the index is down nearly 1 per cent for the week so far.
The FTSEurofirst 300 index of top European shares was up 0.5 per cent at
991.31 points after ending unchanged yesterday following falls in the three preceding sessions as investors positioned for a poor outcome at the summit.
There were, however, signs in the derivatives market that some market players are expecting a rebound in the coming weeks.
Investors were snapping up July 'call' options - the right to buy into the market at a pre-set price and thus benefit from any rally - on the euro zone blue chip Euro Stoxx 50. The Euro Stoxx 50 volatility index - Europe's main gauge of anxiety, known as the VStoxx - has also fallen 0.4 per cent and is down a hefty 27 per cent since it hit a peak on June 4th.
Debt markets continue to reflect the worsening funding outlook for many euro zone nations and the impact of the crisis on the region's growth prospects, with investors reluctant to increase their exposure, even to safe-haven debt, ahead of the leaders' summit.
German 10-year Bund yields rose 6 basis points to 1.56 per cent, while 10-year bond yields in Spain, which has already requested EU bailout funds for its troubled banking sector, eased slightly to 6.85 per cent.
The Bank of Spain warned today that the rate of economic contraction was accelerating, and prime minister Mariano Rajoy said his country would be unable to keep financing itself at current yields for long.
Meanwhile, Italy's six-month borrowing costs rose to 2.957 per cent at auction today, their highest since December.
Ten-year Italian government bond yields were slightly lower at 6.12 per cent, with Italy facing a much bigger test of investor sentiment tomorrow when it auctions up to €5.5 billion of new five- and 10-year bonds.
The fading expectations of a quick resolution to Europe's problems offset tighter supply condition in the Brent crude market to leave the oil price down 46 cents at $92.56 a barrel.
Spot gold was down 0.3 per cent at $1,566.70 an ounce, while US gold futures for August delivery were down $7.60 an ounce at $1,567.30.
Reuters
