European Stocks Advance as Weak Data Spur Stimulus Speculation

  • German factory orders unexpectedly decline in August
  • Federal Reserve seen waiting until March to raise rates

European stocks advanced for a third day as investors assessed valuations and speculated that weak economic data will encourage central banks to keep monetary policy accommodative for longer.

Total SA and Royal Dutch Shell Plc pushed energy shares to the best performance of the 19 industry groups on the Stoxx Europe 600 Index, rising at least 3.3 percent amid a rebound in oil prices. Among auto-related companies, Renault SA gained 5.8 percent as people familiar with the matter said the carmaker is considering plans to restructure its alliance with Nissan Motor Co. PSA Peugeot Citroen climbed 3.9 percent and Daimler AG added 2.5 percent. SBM Offshore NV jumped 5.2 percent after a report that it agreed to pay a lower fine than analysts had estimated in a Brazilian bribery case.

The Stoxx 600 rose 0.6 percent to 360.41 at the close of trading, its highest level in more than two weeks. The equity gauge had lost as much as 18 percent from its April record, posting its worst quarterly drop since 2011 amid concerns about the slowing Chinese economy and an impending Federal Reserve rate increase. Investors are speculating that recent disappointing economic data will give central banks pause for thought before they tighten policies. A report today showed an unexpected drop in German factory orders in August, adding to Friday’s worse than-forecast U.S. payrolls.

“The job report lowered the bets for any rate hike this year, which should give some boost to the markets after suffering this third quarter,” said Guillermo Hernandez Sampere, who helps manage about 150 million euros ($168 million) as head of trading at MPPM EK in Eppstein, Germany. “Investors are tired of betting that the Fed will do anything this year. A lot of people have to reduce their protection, which will feed into a rally. From a value point, we are still on an inexpensive level.”

The recent selloff in European equities has once again pushed them into attractive territory, trading at 14 times their estimated earnings, down from an April high of 16.6. The earnings yield of Euro Stoxx 50 Index companies makes them more appealing than at any time since 2011 relative to government debt.

The chances of the Fed raising interest rates this month have fallen to 8 percent. Traders are predicting a 57 percent possibility of an increase in March, the first month with more than even odds. While the European Central Bank has pledged to spend an average of 60 billion euros a month on bonds through September 2016 to revive euro-area inflation, some economists have warned it’ll need to increase the size of the program.

Among stocks moving on corporate news, Aquarius Platinum Ltd. jumped 37 percent after Sibanye Gold Ltd., the largest miner of the bullion in South Africa, agreed to buy the London-listed miner.

Bouygues SA climbed 3.6 percent after the media and construction group said rebounding sales and wider cost cuts will lift margins at its mobile-phone business by 2017. Vivendi SA gained 1.6 percent after increasing its stake in Telecom Italia SpA for the second time in a month.

SABMiller Plc lost 3.8 percent after people familiar with the matter said it rejected an informal takeover offer from Anheuser-Busch InBev NV. BTG Plc tumbled 9.4 percent after saying revenue will be hurt by stagnant sales of its new varicose vein treatment.

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