European stocks advanced for a fourth week as companies from BP Plc to Alcatel-Lucent SA posted results that exceeded estimates, while cooling inflation fueled speculation the European Central Bank may ease monetary policy.
BP posted its best week in 23 months after the oil producer increased its dividend. Alcatel-Lucent rallied 18 percent after predicting it will beat its cost-cutting targets this year and reporting a narrower-than-forecast quarterly loss. UBS AG dropped the most in almost two years after saying it may fail to reach its profitability goal until at least 2016.
The Stoxx Europe 600 Index advanced 0.4 percent to 321.50 this week, extending its rally so far this year to 15 percent. The gauge climbed to a five-year high of 322.37 on Oct. 31, capping its second consecutive month of gains.
“With Europe moving out of a recession we’re really in the moment of truth for earnings,” said Didier Duret, who oversees about $222 billion as chief investment officer for ABN Amro Private Banking. “Inflation coming down substantially may trigger an ECB rate cut in the following meetings. This is also good for equities and is not yet fully priced into current expectations.”
The euro had its biggest weekly loss since July 2012 after data this week showed euro-area inflation unexpectedly slowed and the jobless rate climbed to a record. “Any weakening of the euro will add momentum to European earnings,” Duret said. “The risks are now more on the upside.”
Inflation in the region fell to 0.7 percent in October, the lowest annual rate since November 2009 and below the ECB’s target of 2 percent. Economists at Royal Bank of Scotland Group Plc, UBS, and Bank of America Corp.’s Merrill Lynch unit project the central bank will cut its benchmark interest rate to 0.25 percent after its policy meeting next week. Still, 65 of 68 economists predict no change from 0.5 percent, estimates compiled by Bloomberg News show.
In the U.S., the Federal Open Market Committee maintained its monthly bond purchases at $85 billion this week and said that while it sees signs of strength in the economy, it will wait for more evidence of sustained improvement before slowing stimulus. U.S. reports showed industrial production unexpectedly increased in September, while business activity expanded in October at the fastest pace since March 2011.
The FOMC dropped its warning from last month that tighter financial conditions could impair the recovery. The odds for the Fed to start reducing bond purchases in January rose to 45 percent from 25 percent before the statement, Citigroup Inc. said. Economists surveyed by Bloomberg Oct. 17-18 predicted the Fed would wait until March to begin the cuts.
National benchmark indexes rose in 14 of the 18 western European markets this week. The U.K.’s FTSE 100 advanced 0.2 percent, while Germany’s DAX added 0.3 percent and France’s CAC 40 gained less than 0.1 percent.
BP rallied 7.5 percent, its biggest weekly increase since December 2011, after raising its dividend by 5.6 percent to 9.5 cents a share as third-quarter profit slipped less than analysts had predicted. Europe’s third-largest oil company also said it will sell a further $10 billion of assets by the end of 2015 and give most of the proceeds to shareholders, favoring buybacks.
Alcatel-Lucent jumped 18 percent, rebounding from its worst week since April, after reporting a net loss of 200 million euros ($270 million), compared with 316 million euros a year earlier and analyst predictions of 274 million euros. Spending cuts helped the French network-equipment maker save 259 million euros so far this year, putting it on course to exceed its full-year target for as much as 300 million euros in savings.
Nokia Oyj, which in September agreed to sell its mobile-phone division to Microsoft Corp., increased 12 percent. The Finnish company predicted operating profit, excluding some costs, will be as high as 16 percent of sales at its network unit in the final quarter of 2013. That compares with 8.4 percent in the previous quarter.
BT Group Plc rose 5.4 percent after Britain’s biggest fixed-line phone company reported a smaller-than-projected decline in profit as more than 2 million customers subscribed to its new BT Sport channels.
A gauge of telecommunications companies posted the best performance of the 19 industry groups on the Stoxx 600 this week, closing at its highest level in more than five years. Telecom Italia SpA led with a 6.2 percent increase.
UBS slid 7.7 percent. Switzerland’s largest bank said its target of reaching 15 percent return on equity in 2015 will be delayed by at least a year unless the Swiss regulator removes its demand that the lender hold more capital for risks related to litigation.
Renault SA fell 7.3 percent, after its partner, Nissan Motor Co., cut its full-year profit forecast by 15 percent because of slowing demand in emerging markets and mounting recall costs.
Viscofan SA fell 9.6 percent, its largest weekly drop in more than five years, after saying it may miss its targets for 2013 because of weak currencies. The Spanish maker of sausage casings in July predicted annual net income of 107 million euros to 108 million euros and earnings before interest, taxes, depreciation and amortization of as much as 195 million euros.
Technip SA sank 15 percent, its biggest weekly retreat in more than two years after third-quarter profit missed the average analyst estimate compiled by Bloomberg. The oilfield-services provider also cut full-year forecasts for the operating margin and sales at its subsea unit, meaning total sales will miss an earlier target of as much as 9.5 billion euros.