European stocks are set to edge lower on Wednesday on concerns surrounding Spain's banks after Bank of Spain Governor Fernandez Ordonez decided to quit the post one month ahead of schedule, handing the responsibility of dealing with the country's deepening banking sector crisis to a successor.
Ordonez, who came under heavy criticism following the recent nationalization of Bankia, met Prime Minister Mariano Rajoy on Tuesday and conveyed his decision to leave on June 10 instead of July 12, reports say citing a statement from the Bank of Spain.
Meanwhile, according to the Financial times, the European Central Bank has blatantly rejected Spain's plan to recapitalize the troubled lender Bankia using sovereign bonds and then swapping them for cash at the ECB's three-month refinancing window.
Bankia, one of the largest banks in Spain, had asked for a whopping EUR 19 billion state aid on May 25 after receiving EUR 4.5 billion in rescue funds in 2010.
On the positive side, the European Commission may allow more time to the Spanish government to meet its deficit target, El Pais reported Wednesday citing an EU draft document.
In view of the renewed tensions surrounding Spain's public finances and the banking sector, the Commission may ask the European Union finance ministers to extend the deadline to 2014 from the current 2013 to bring its deficit to 3 percent of GDP. In return, the EU urged Spain to "implement the fiscal strategy as planned" in the stability program.
Asian stock markets are trading mostly lower, commodities retreated and the euro fell to a two-year low versus the dollar, as worries about Spain coupled with news that China won't resort to aggressive stimulus weakened risk appetite.
China may not come up with stimulus measures of the scale seen during the global financial crisis in 2008 to help revive economic growth, the nation's state-run Xinhua News Agency said yesterday in an article on economic policy.
In economic releases, economic sentiment survey results from eurozone and mortgage approvals from the U.K. are the major statistical reports due in the European session. Eurozone economic sentiment is seen easing to 91.9 in May from 92.8 a month ago. At the same time, business confidence is forecast to weaken to -0.67 from -0.52 in April.
Italy's debt auction results are also due, with the treasury expecting to raise EUR 6.25 billion from 5-year and 10-year bonds.
In corporate news, Deutsche Boerse AG said it will buy back shares worth approximately EUR 100 million until the end of July.
Postal and logistics firm Deutsche Post DHL said it has received a demand asking it to repay state aid including interest in the amount of 298 million euros.
Polytec Holding AG said it has received shareholder nod to buy back up to 10 percent of the company's shares over a period of 30 months.
LifeWatch AG said it has signed a major contract with Sleep Management Solutions, a subsidiary of CareCentrix Inc., for LifeWatch home sleep testing.
Weng Fine Art AG has filed with German authorities the mandatory disclosure related to a purchase of an initial 4 percent ownership interest in Artnet AG that it acquired in cooperation with its largest shareholder RKW Art + Asset Management GmbH.
European stocks largely finished in positive territory on Tuesday despite concerns over Spanish banks. Hopes for new measures to boost China's economy perked up sentiment a little bit, offsetting investor concerns over Spain's fiscal situation and the future of the euro.
The Euro Stoxx 50 index of eurozone bluechip stocks and the Stoxx Europe 50 index, which includes some major U.K. companies, added about half a percent each, while around Europe, the U.K.'s FTSE 100, Switzerland's SMI, the German DAX and France's CAC 40 ended up between 0.7 percent and 1.4 percent.
U.S. stocks saw considerable volatility before ending mostly higher overnight in reaction to mixed news out of Europe. Greek opinion polls gave shares a lift and speculation that China will announce another round of stimulus measures further underpinned sentiment, outweighing data showing a notable deterioration in U.S. consumer confidence in May.
Gains were kept in check following news that Egan Jones downgraded Spain's credit rating to BB- from B. "Spain will inevitably be faced with sizable payments to support its banking sector and for its weaker provinces," Egan-Jones said in a statement. The Dow added a percent, the tech-heavy Nasdaq gained 1.2 percent and the S&P 500 ended up 1.1 percent.
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