European Stocks Rise for Third Week on Fed Taper SurpriseInyoung Hwang
European stocks climbed for a third straight week after the Federal Reserve unexpectedly refrained from reducing its monthly bond purchases and Lawrence H. Summers withdrew from consideration as chairman of the central bank.
Glanbia Plc rallied the most in more than two years as food and beverage shares gained. Hennes & Mauritz AB jumped 6.9 percent after reporting monthly sales that beat estimates. Edenred SA rose 7.8 percent after Raymond James Financial Inc. said margins may improve in 2014. Fresnillo Plc sank 14 percent after missing out on inclusion in a gold-miners gauge.
The Stoxx Europe 600 Index advanced 0.9 percent to 314.2 this past week. The equity gauge has surged 5.7 percent in September, putting it on course for the biggest monthly gain in almost two years. The measure has climbed 12 percent in 2013 as the euro area emerged from recession and central banks pledged to keep borrowing costs low to support the global economy.
“The lack of tapering was a real surprise,” Philip Dicken, head of European equities at Threadneedle Asset Management Ltd. in London, said by phone. His firm oversees about $127 billion. “It signals that if the Fed is at all worried about growth, they will not use tapering if it will choke off that growth. It’s another net positive for European equities, where life is getting incrementally better.”
The Stoxx 600 climbed to its highest level since June 2008 on Sept. 19, a day after the Fed said it needs to see more evidence of lasting improvement in the U.S. economy before slowing bond purchases. Some 44 of 64 economists surveyed by Bloomberg before the decision had predicted that the central bank would start tapering stimulus measures this month.
The Fed repeated guidance that its target interest rate will remain low for at least as long as unemployment exceeds 6.5 percent, and the outlook for inflation remains no higher than 2.5 percent. Stocks worldwide also rallied this week after Summers withdrew from the running to replace Ben S. Bernanke as Fed chairman, paving the way for Janet Yellen, who investors say will favor slower stimulus reduction.
European equities fell yesterday after Fed Bank of St. Louis President James Bullard said a “small taper” in stimulus is possible next month and as investors awaited Sunday’s elections in Germany.
The Bank of England released this week the minutes from its Sept. 4-5 meeting, which showed that officials unanimously concluded there was no need for additional stimulus given the improving outlook for the British economy.
The VStoxx Index, a measure of expected volatility in euro-area stocks, slid 8.8 percent to 16.76 this week, the lowest level in a month. National benchmark indexes climbed in 16 of the 18 western-European markets. Germany’s DAX added 2 percent, France’s CAC 40 rose 2.2 percent and the U.K.’s FTSE 100 gained 0.2 percent.
“Whereas before the news was always getting worse, now it’s getting a little better,” Dicken said. “That sort of turning point makes a critical difference to equities.”
Glanbia rallied 9.2 percent in Dublin for the biggest gain in the Stoxx 600 this week. The Kilkenny, Ireland-based dairy producer led a gauge of food and beverage shares in the Stoxx 600 higher by 2.3 percent. Nutreco NV, the world’s biggest maker of fish feed, rose 6.2 percent in Amsterdam.
Banks also climbed. Banco de Sabadell SA surged 9.1 percent for the second-biggest increase in the Stoxx 600. HSBC Holdings Plc raised Spain’s fifth-biggest lender to neutral, or hold, from underweight. Unione di Banche Italiane SCPA jumped 7.5 percent after Goldman Sachs Group Inc. said capital-sensitivity at Italian banks is decreasing.
H&M gained 6.9 percent, the biggest rally in 15 months. Europe’s second-largest clothing retailer said revenue at stores open at least a year rose 4 percent in August compared with the same month last year. The average estimate in a SME Direkt survey was for a 2.5 percent increase.
Edenred climbed 7.8 percent for the biggest advance in 18 months. So-called organic-issue volume growth at the French seller of meal and service vouchers may climb 10.5 percent in the third quarter, Raymond James wrote in a report. The firm rates Edenred shares as outperform, similar to a buy recommendation.
Remy Cointreau SA jumped 6 percent, the most since January. Chinese cognac shipments increased 20.5 percent in August, rising for the first time since January, according to UBS AG, citing from BNIC, a trade association of cognac makers.
Fresnillo tumbled 14 percent for the biggest decline since June. The precious-metals producer wasn’t added to the NYSE Arca Gold Miners Index, after the gauge’s methodology was changed to include companies not listed in the U.S.
K+S AG, Europe’s biggest potash distributor, sank 8.9 percent. Potash Corp. of Saskatchewan Inc., North America’s largest fertilizer producer, said OAO Uralkali’s withdrawal from a joint venture with Belarus has paralyzed global markets for the crop nutrient.