Dow Looks to Europe for Direction

LONDON -- The Dow Jones Industrial Average (INDEX: ^DJI  ) is expected to open slightly down this morning as markets await the outcome of an emergency G7 teleconference about the eurozone crisis, as well as the latest reading of the ISM service-sector purchasing index, which is due at 10 a.m. EDT. The ISM service data for May is expected to be unchanged from April, but the recent run of below-expectation economic data suggests that these expectations could prove optimistic.

G7 ministers are holding a teleconference at 7 a.m. EDT to discuss the problems in Europe, and it is expected the meeting will increase pressure for a European banking union, with centrally backed bailout deals for Spanish banks. Support for greater eurozone integration appears to be growing after both the French government and the European Commission indicated their support for a eurozone "banking union."

Overnight, Spanish treasury minister Cristobal Montoro joined the calls for centralized European refinancing for Spanish banks and said that the current risk premium attached to Spanish government bonds indicates "that as a state we have a problem in accessing markets when we need to refinance our debt." Spain's next scheduled government bond auction is later this week.

European economic data released today showed that German industrial orders fell by 1.9% in April, worse than expected and the biggest drop since November. Service-sector PMI data was also disappointing, showing that contraction continues in Spain, France, and Italy, while Germany's service sector is slowing with a PMI of 51.8, just above the growth threshold of 50.

London markets are closed again today for a public holiday, leaving the FTSE 100 (INDEX: ^FTSE  ) unchanged since it closed down 1.1% at 5,260 on Friday. The other main European markets repeated the patterns seen yesterday morning. At 7 a.m. EDT, the German DAX was down 0.8%, while the French CAC 40 was up by 0.4% and Spain's IBEX 35 had risen by 0.25%. Big-cap fallers on the DAX included Siemens AG and Deutsche Bank.

No major company earnings data is due today, but shares in Starbucks (Nasdaq: SBUX  ) may fall after investors were disappointed by the small scale of a bakery acquisition announced by the company after markets closed on Monday.

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