European stocks posted their biggest weekly rally since April as the Federal Reserve’s decision to reduce its monthly bond purchases increased investors’ confidence in the strength of the U.S. economic recovery.
Cable & Wireless Communications Plc surged 16 percent after U.K. newspapers named it as a potential acquisition target. Carnival Plc jumped 10 percent after the world’s largest cruise-ship operator posted quarterly sales that beat estimates. CGG SA slumped 15 percent after the world’s biggest seismic surveyor of oilfields cut its earnings forecast for 2013.
The Stoxx Europe 600 Index rose 3.7 percent to 321.14 this past week, trimming its decline from the beginning of the month to 1.2 percent. The equity benchmark has gained 15 percent this year, on course for its best annual performance since 2009, as central bankers around the world pledged to leave interest rates near record lows for a prolonged period of time.
“People who were uncertain about European equities hesitated because of tapering and there has just been relief since the announcement,” Steven Bell, a London-based fund manager at F&C Asset Management Plc, which oversees an equivalent of $150 billion, said. “This year has been about fears not being realized. The tapering talks earlier in the year caused a major wobble, but now people have gotten used to it. It’s another year the European economy hasn’t fallen apart.”
The Fed said on Dec. 18 that it will reduce its bond purchases to $75 billion a month from $85 billion. The central bank reiterated that it intends to hold its target interest rate near zero at least as long as unemployment exceeds 6.5 percent and the outlook for inflation fails to climb above 2.5 percent. Twelve out of 17 Federal Open Market Committee participants predicted that interest rates will next increase in 2015.
“When financial markets see a relatively healthy economy, they would like to have some of the emergency life support removed,” Toby Nangle, head of multi-asset allocation at Threadneedle Asset Management Ltd. in London, said by phone. His company manages about $137 billion in assets.
In Europe, a report showed euro-area factory output grew at a faster pace in December than economists had forecast. Markit Economics’ purchasing managers’ index climbed to 52.7, beating the median estimate of 51.9. A measure of manufacturing in Germany, the continent’s largest economy, rose to 54.2 this month, also beating estimates. Readings above 50 mean that activity increased.
The European Union’s finance ministers reached an agreement late on Dec. 18 on how to deal with cross-border banks that fail. The meeting pledged to set up a 55 billion-euro ($75 billion) industry-financed fund for the next 10 years. The ministers also agreed to establish an agency to make decisions on handling failing banks and when to share costs.
National benchmark indexes rose in every western-European market except Greece and Iceland this past week. The U.K.’s FTSE 100 Index advanced 2.6 percent, France’s CAC 40 gained 3.3 percent and Germany’s DAX jumped 4.4 percent.
CWC rallied 16 percent. The Daily Telegraph, the Guardian, the Daily Mail and the Times all named the London-based provider of telecommunications services in the Caribbean as the potential target of a takeover.
Carnival jumped 10 percent, its biggest weekly rally since December 2011. Sales rose 2.2 percent to $3.66 billion in the quarter ended Nov. 30. That exceeded the average analyst estimate of $3.53 billion.
Mediaset SpA climbed 14 percent. Deutsche Bank AG said that the Italian broadcaster’s plan to spin off its pay-TV assets could increase the company’s profitability. A stand-alone TV business could attract an outside investor to share the cost of the rights to screen live soccer.
Bwin.Party Digital Entertainment Plc advanced 9.7 percent after forecasting a margin on earnings before interest, taxes, depreciation, amortization and some items of 16 percent to 17 percent in 2013. The company said it remained positive on its outlook for 2014, citing new products, prospects for further growth in the U.S. and greater betting volumes during next year’s FIFA World Cup.
CGG plunged 15 percent, its biggest weekly drop since August 2011, after cutting its projection for earnings before interest and taxes in 2013 to no more than $420 million. It had forecast Ebit of $470 million. The company said that some clients have postponed the start of large projects until 2014.
Technip SA slid 5.8 percent. The French oilfield-services company said that the operating margin for its subsea division will drop to about 5 percent before recovering to at least 12 percent next year. It has forecast a 14 percent margin for the unit in 2013.