European Stocks Advance Before Fed Rate Decision
European stocks advanced, sending the Stoxx Europe 600 Index to its highest level in more than a month, amid speculation the Federal Reserve will expand Operation Twist to help sustain economic growth.
Aer Lingus Group Plc surged 15 percent after Ryanair Holdings Plc (RYA) renewed its offer to buy the company. Hennes & Mauritz AB (HMB) rose 4.8 percent after earnings topped forecasts. Unilever NV (UNA) declined after Procter & Gamble Co., the world’s largest consumer-products maker, cut its earnings forecast.
The Stoxx 600 (SXXP) rose 0.6 percent to 249.67 at the close in London, the gauge’s highest level since May 11. The benchmark measure has still fallen 8.3 percent from its peak on March 16 amid concern Europe’s sovereign-debt crisis has derailed global economic growth.
“The Federal Open Market Committee is taking center stage with expectations once again high that Fed will finally do something to stimulate increasingly sluggish growth,” said Markus Huber, head of German sales trading at ETX Capital in London. “The Fed will have to deliver something today.”
The Fed will probably expand Operation Twist beyond $400 billion to spur growth and buy protection against a deeper crisis in Europe, according to a Bloomberg News survey of economists.
Fifty-eight percent of respondents in a June 18 poll said the Fed will prolong the program, which seeks to lower borrowing costs by extending the average maturity of the securities in the central bank’s portfolio. The current plan ends this month.
The FOMC ends its two-day meeting today with a statement scheduled for release at about 12:30 p.m. in Washington. Sixty percent said the Fed probably won’t start a third round of large-scale bond purchases, known as quantitative easing.
Euro-area leaders at the Group of 20 summit in Mexico yesterday pledged to take “all necessary policy measures” to defend the currency union as world leaders endorsed a road map for tighter integration to cut borrowing costs and prevent further damage to the global economy. Attention now shifts to a summit of European Union leaders in Brussels on June 28-29.
National benchmark indexes rallied in all 18 western- European markets except in Switzerland and Ireland. The U.K.’s FTSE 100 Index added 0.6 percent and Germany’s DAX increased 0.5 percent. France’s CAC 40 increased 0.3 percent.
Antonis Samaras, leader of Greece’s New Democracy party, was sworn in as prime minister after political leaders in the Mediterranean nation agreed on a coalition that will seek relief from austerity measures tied to international loans.
New Democracy, which won a June 17 election with almost 30 percent of the vote, will join forces with the socialist Pasok party, which finished third, and the sixth-place Democratic Left. They will hold 179 seats in the 300-member parliament, ending a period of political limbo that began with an inconclusive May 6 election.
Bank of England Governor Mervyn King and three other policy makers were overruled in a push to expand the bank’s bond- purchase program as a majority said more stimulus was likely to be needed to address risks from the euro crisis, according to minutes of its June 6-7 meeting published today.
The Monetary Policy Committee voted 5-4 to keep its bond- purchase target at 325 billion pounds ($511 billion). Most MPC members “judged that some further economic stimulus was either warranted immediately or would probably become warranted to meet” their 2 percent inflation target.
Aer Lingus (AERL) paced advancing shares after Ryanair, Europe’s biggest discount airline, offered to buy its Irish rival for 694 million euros ($883 million). Aer Lingus surged 15 percent to 1.09 euros in Dublin, the most since September 2009, as Ryanair, which already holds a 29.8 percent stake, said it intends to make an all-cash offer of 1.30 euros per share.
Ryanair said yesterday the cash offer was prompted in part by the Irish government’s plan to sell its 25 percent holding in Aer Lingus as part of wider disposal of assets aimed at balancing budgets. The government won’t be forced into a “fire sale” of its stake of Aer Lingus, Irish Prime Minister Enda Kenny said.
H&M gained 4.8 percent to 241.50 kronor after Europe’s second-largest clothing retailer reported a 23 percent increase in second-quarter profit to 5.22 billion kronor ($751 million) as U.S. and Asian sales rose. The average of 14 analysts’ estimates compiled by Bloomberg called for 4.86 billion kronor.
ITV Plc (ITV) climbed 3 percent to 76.5 pence after the Guardian, Telegraph and the Financial Times reported speculation that a private-equity firm may make a bid for the company. The newspapers cited traders. ITV spokeswoman Mary Fagan declined to comment on the reports.
“I’m a big buyer of ITV and I think it’s very undervalued,’ said Alex DeGroote, an analyst at Panmure Gordon in London. ‘‘I can easily justify and rationalize why it would be attractive to a private equity buyer. The probability of such a sale, however, is low.”
PSA Peugeot Citroen jumped 6.5 percent to 8.21 euros after La Tribune reported that France may introduce a tax on large luxury cars to help slow a drop in demand for smaller models built in the country. The newspaper cited a study commissioned by elected officials of towns with auto plants.
Shares of Renault SA gained 2.8 percent to 33.54 euros, extending yesterday’s 4.6 percent advance.
Unilever lost 0.8 percent to 25.33 euros. Larger rival Procter & Gamble (PG) cut its fourth-quarter earnings and revenue forecasts because of slower-than-expected sales in developed regions and unfavorable movements in foreign-exchange rates.
Danone (BN) fell 1.6 percent to 47.94 euros, extending yesterday’s 6 percent plunge as analysts from CA Cheuvreux to UBS AG and Bank of America Corp. downgraded the world’s biggest yogurt maker. The shares yesterday tumbled the most in three years after the company cut its profitability forecast.
Kesa Electricals Plc (KESA) dropped 5 percent to 52.5 pence after the owner of the Darty electronics chain reported a 42 percent slump in full-year adjusted pretax profit to 59 million euros. The company cut its dividend and said Mothercare Plc’s Alan Parker will replace David Newlands as chairman. The shares had climbed 19 percent over the previous four days.
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