European stocks were little changed this past week, near their highest valuation since 2010, amid speculation that the rally in equities has overshot the outlook for corporate earnings and the region’s economy.
SSAB AB sank 11 percent after forecasting an operating loss because of falling demand for strip steel. Opap SA plunged 19 percent after Greece’s government reached an agreement with the European Commission to increase taxes on the company. Telenet Group Holding NV surged 15 percent after Liberty Global Inc. made a $2.5 billion offer to buy the remaining shares that it doesn’t already own.
The Stoxx Europe 600 Index slipped 0.1 percent to 275.78 this week, following two weeks of gains. The gauge has still surged 18 percent from this year’s low on June 4 as European Central Bank President Mario Draghi said that he would do everything to protect the euro and speculation mounted that the Federal Reserve would announce a third round of bond purchases.
“If you cut through this week’s noise, what was very disturbing was the divergence in the purchasing managers’ index figures between France and Germany which shows that Europe is diverging into an A and a B team, with France joining the B team with Italy and Spain,” said Peter Garnry, an equity strategist at Saxo Bank A/S in Copenhagen.
The Stoxx 600’s rally this year pushed the gauge’s valuation to 12.3 times the estimated earnings of its constituent companies on Sept. 14, its highest multiple since December 2010, according to data compiled by Bloomberg.
A survey on Sept. 20 showed that France’s manufacturing industry will contract this month more than economists had forecast. The measure, which is based on a PMI, showed a preliminary reading of 42.6 for September, less than the median economist estimate of 46.4 in a Bloomberg News survey.
A separate release the same day showed that Germany’s manufacturing index will shrink this month less than predicted. The PMI for Europe’s largest economy climbed to 47.3 from 44.7. That beat the average estimate for a reading of 45.2. A figure below 50 signals that the industry contracted.
The Stoxx 600 rebounded on Sept. 21, limiting its decline for the week, after the Financial Times reported that Spain and the European Commission have discussed a package of reforms needed to obtain a bailout for the country.
Spain’s Economy Minister Luis de Guindos has held talks with the commission about a series of structural reforms that will be unveiled on Sept. 27, the FT reported, citing unidentified officials involved in the discussions. The European Union needs Spain to meet specific conditions before it can proceed with a bailout of the country.
Deputy Prime Minister Soraya Saenz de Santamaria said this past week that the Mediterranean nation will only consider asking for a bailout if it finds the EU’s conditions acceptable.
The yield on Spain’s 10-year bonds dropped three basis points to 5.76 percent this past week, while Germany’s 10-year bund yields slipped 11 basis points to 1.60 percent.
In China, a report showed that the manufacturing industry in the world’s second-biggest economy may contract in September for the 11th consecutive month. A PMI compiled by HSBC Holdings Plc and Markit Economics had a preliminary reading of 47.8.
SSAB tumbled 11 percent, its biggest weekly retreat in 13 months. The Swedish steelmaker forecast a third-quarter operating loss of 700 million kronor ($107 million) including a one-off provision of as much as 60 million kronor for an efficiency-improvement program.
ThyssenKrupp AG, Germany’s largest steelmaker, fell 7.4 percent and Salzgitter AG, the country’s second-biggest steelmaker, lost 7.2 percent. A gauge of Europe’s commodity companies dropped 4.1 percent, the biggest weekly retreat of the 19 industry groups in the Stoxx 600.
Opap sank 19 percent after Greece’s gambling monopoly announced that the finance ministry agreed to impose a 30 percent tax on gross profit through Oct. 2020 and a 10 percent surcharge on winnings. Pantelakis Securities analyst, Paris Mantzavras, wrote in a note that the charges may cut the company’s earnings per share by as much as 40 percent.
Telenet surged 15 percent, its biggest weekly gain in almost four years. Liberty Global, the John Malone-led cable-TV company, offered to buy 49.6 percent of the Belgian business. Englewood, Colorado-based Liberty will give Telenet investors 35 euros a share.
Vestas Wind Systems A/S soared 12 percent as SEB Enskilda AB said on Sept. 17 that Mitsubishi Heavy Industries Ltd. may agree to share technology or buy a stake in the Danish wind-turbine maker. The Nordic investment bank said that Japan’s growing interest in renewable energy has increased the likelihood of a deal with Vestas.
Acciona SA rose 14 percent after the renewable energy and water provider won wastewater treatment contracts in Mexico and Costa Rica. The Alcobendas, Spain-based company valued the contract to build and maintain the El Caracol wastewater plant near Mexico City at 764 million Mexican pesos ($60 million). The contract runs for 23 years.
Heineken NV gained 9.1 percent after companies owned by Thai billionaire Charoen Sirivadhanabhakdi gave their support for the Dutch brewer’s $4.6 billion bid for Fraser & Neave Ltd.’s 40 percent stake in Asia Pacific Breweries Ltd.
Charoen’s Thai Beverage Pcl and TCC Assets Ltd. will back Heineken’s bid after the lager company, which runs APB in a venture, agreed not to make a competing offer for F&N.