European Stocks Advance on View Global Recovery to Continue; Danisco Gains
European Stocks Post Weekly Gain
Hannelore Foerster/Bloomberg
The Frankfurt Stock Exchange.
The Frankfurt Stock Exchange. Photographer: Hannelore Foerster/Bloomberg
European stocks advanced this week on optimism that the economic recovery will continue, while central banks said they stand ready to act should growth falter.
Danisco A/S surged 8.6 percent after the world’s largest maker of food ingredients posted profit that beat estimates. Safran SA rose 11 percent after BofA Merrill Lynch Global Research advised buying the shares. Merck KGaA fell the most in the Stoxx 600 after European regulators rejected its multiple sclerosis pill cladribine. Natixis led a measure of European banking shares lower as the stock was downgraded at Goldman Sachs Group Inc.
The benchmark Stoxx Europe 600 Index gained 0.4 percent this week, paring last week’s 0.7 percent slide. The gauge has rallied 14 percent from its low this year on May 25 as investors speculated that the economy will continue to grow even as European nations slash spending to control their budget deficits and China takes steps to cool its growth.
“Northern Europe is doing extremely well,” said Martin Huefner, chief economist at Assenagon GmbH in Munich, which has more than $4.7 billion in client assets. “Germany is the strongest country in Northern Europe. In the U.S., we still have a mixed picture, but the economy will also improve, though at a slower pace.”
German Confidence
German business confidence unexpectedly rose to the highest level in more than three years in September. The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, increased to 106.8 from 106.7 in August. Economists had expected a drop to 106.4, according to the median of 36 forecasts in Bloomberg News survey.
In the U.S., housing starts increased more than forecast in August, a signal the industry is stabilizing. Orders for capital equipment in the region also topped estimates.
Federal Reserve decision makers said that the central bank is willing to ease monetary policy further to spur growth and support prices, while refraining from expanding its holdings of securities. The Bank of England’s policy makers are moving closer to adding more stimulus to the economy, joining the Fed in contemplating further bond purchases to bolster the recovery, according to the minutes of the bank’s Sept. 9 meeting.
Bond auctions by some of Europe’s most indebted nations also helped improve sentiment among investors this week. Ireland sold 1.5 billion euros ($2 billion) of bonds as central bank Governor Patrick Honohan said the government needs to cut its budget deficit at a faster pace. In Spain, the government sold 7 billion euros of 12-month and 18-month bills, the maximum target.
Calmed Down
“Bond auctions this week calmed down fears temporarily but the sovereign-debt crisis remains a worry,” said Christian Falkner, an analyst at Alpha Wertpapierhandels AG in Frankfurt. “I think there is still more upside for equities towards the year-end though.”
Still, the Stoxx 600 Index fell for three days this week as the premium that investors demand to hold government bonds from Ireland and Portugal rather than benchmark German bunds reached record levels, indicating the sovereign-debt crisis may worsen as the recovery slows.
Growth in Europe’s services and manufacturing industries weakened more than economists forecast in September. A composite index based on a survey of euro-area purchasing managers in both industries declined to 53.8 from 56.2 in August, London-based Markit Economics said. Economists expected a reading of 55.7, according to the median forecast in a Bloomberg News survey.
National benchmark indexes rose in all but 5 of the 18 western European markets. France’s CAC 40 Index and the U.K.’s FTSE 100 Index gained 1.6 percent, while Germany’s DAX Index rallied 1.4.
Best Quarter
Danisco surged 8.6 percent. The company lifted its annual forecast after the sweeteners unit had the best quarter in two years. Net income in the three months ending July 31 rose 31 percent to 402 million kroner ($71 million), beating the average estimate of 305 million kroner.
Adidas AG, the world’s second-largest sporting-goods maker, jumped 6.8 percent. Rival Nike Inc. said orders from China surged 25 percent as demand for basketball-related sportswear soared as it posted results that topped analysts’ estimates.
Separately, Adidas’ Chief Executive Officer Herbert Hainer said the company will increase sales and profit in 2011 as China rebounds and Russia becomes the company’s top European market.
Puma AG, Europe’s second-largest sporting-goods maker, rose 11 percent.
Safran, John Wood
Safran, Europe’s second-biggest aircraft-engine maker, surged 11 percent. The company was upgraded to “buy” from “neutral” at BofA Merrill Lynch, citing a commercial aerospace recovery.
A gauge of European automakers on the Stoxx 600 led gains, climbing 3.3 percent. Fiat SpA surged 7.5 percent as Goldman Sachs reiterated its “conviction buy” recommendation on the Italian carmaker, saying in a note that “the demerger of Fiat Industrial is a key catalyst to release hidden value in Fiat Group.”
John Wood Group Plc. rose 9.7 percent. Oilfield-services providers rallied after Wellstream Holdings Plc said it received “a number of preliminary approaches” from potential bidders. Wellstream soared 34 percent.
Separately, JPMorgan Chase & Co. lifted its recommendation on the John Wood to “overweight” from “neutral.”
Merck sank 12 percent, leading healthcare shares to the biggest retreat in the Stoxx 600. The European Medicines Agency didn’t recommend approval of the medicine because the benefits don’t outweigh the risks, Merck said in a statement. Merck is weighing an appeal and still believes that cladribine has the potential to generate $1 billion in revenue a year, said Elmar Schnee, head of the company’s drug unit.
Natixis, the investment-banking unit of France’s second- largest lender by branches, slumped 6 percent as Goldman Sachs recommended selling the stock. European banks lost 0.7 percent this week, the second-worst performance in the Stoxx 600.
To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net;
To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net.
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