European Stocks Climb After Draghi Signals More StimulusInyoung Hwang
European stocks rose to their highest level this month, following two weekly increases, after European Central Bank President Mario Draghi signaled policy makers are ready to add stimulus.
Banks contributed the most to the Stoxx Europe 600 Index’s gain, with Banca Monte dei Paschi di Siena SpA rallying 5.8 percent, and Banco Santander SA and BNP Paribas SA each adding at least 2 percent. Arkema SA advanced 2.6 percent after Deutsche Bank AG recommended investors buy shares of the maker of composites and coatings. Eurazeo SA rose 3.4 percent after Societe Generale SA increased its rating on the stock.
The Stoxx 600 gained 1.1 percent, the most since Aug. 18, to 340.46 at the close of trading in London, with all 19 industry groups up. The gauge rallied 2.1 percent last week, the most since February, as investors bet that an industrial slowdown in the euro area will increase pressure on the ECB to introduce asset purchases known as quantitative easing.
“Draghi is going more in the direction of QE and that is helping equity markets today,” Karim Bertoni, who helps manage $3.3 billion at de Pury Pictet Turrettini in Geneva, said by telephone. “Yellen was more balanced, but she’s still looking at the development of the economy and employment is more important for her. So even if there is a slight change in her stance, it won’t be a dramatic one and the Fed will likely stay put in terms of interest rates for some time. This is all positive for equities.”
The U.K. market was closed today for a holiday, and the volume of Stoxx 600 shares trading was 63 percent below the 30-day average, data compiled by Bloomberg show.
Draghi told his international counterparts in Jackson Hole, Wyoming, on Aug. 22 that investor bets on euro-area inflation have “exhibited significant declines at all horizons” this month. He has previously said that any worsening of the medium-term inflation outlook would provide a reason for the central bank to carry out quantitative easing.
The ECB’s economic outlook increasingly contrasts with that of the U.S. central bank. Federal Reserve Chair Janet Yellen said at the Jackson Hole conference that the U.S. labor market has made “considerable progress,” though too many Americans are still out of work. Fed officials are slowing monetary stimulus and debating when to exit from ultra-loose policy.
The Stoxx 600 maintained gains after a report showed that German business confidence fell for a fourth month in August. The Ifo institute’s business climate index, based on a survey of 7,000 executives, dropped to 106.3 from 108 in July. The median economist forecast was for a decline to 107.
In the U.S., new-home sales fell to a 412,000 annualized pace last month from a revised 422,000 rate in June. Economists had projected 430,000 for July.
National benchmark indexes rose in 16 of the 17 western-European markets open today, and Germany’s DAX Index added 1.8 percent. Some of Europe’s biggest investors say the nation’s stocks have become too cheap to turn down, with the benchmark gauge near its lowest valuation since at least 2005 relative to the Stoxx 600.
France’s CAC 40 Index increased 2.1 percent, the most since March 4. President Francois Hollande asked Prime Minister Manuel Valls to form a new government amid a cabinet dispute over the direction of the euro area’s second-biggest economy. Valls presented his resignation after his economy minister called for fiscal stimulus to bolster growth in a Le Monde weekend interview.
Stoxx 600 lenders gained 1.4 percent as a group. Monte dei Paschi rose 5.8 percent to 1.16 euros. Santander climbed 2.5 percent to 7.58 euros, and BNP Paribas advanced 2.4 percent to 50.23 euros.
Arkema added 2.6 percent to 56.95 euros. Deutsche Bank raised its rating on the Colombes, France-based company to buy from hold, citing its geographical and business diversity, growth opportunities in niche areas, and the shares’ cheap valuation. They traded at 16.7 times reported earnings at the end of last week, compared with the average 23.5 times in the past year, according to data compiled by Bloomberg.
Eurazeo advanced 3.4 percent to 53.34 euros. Societe Generale boosted it to buy from hold, saying the French buyout firm’s discount to its net asset value is near 30 percent.
Vivendi SA rose 1.6 percent to 19.80 euros. Telefonica SA may raise its bid for the French media company’s Brazilian Internet-provider unit in an offer that could value GVT at 8 billion euros ($10.6 billion), Italian newspaper Il Messaggero reported, without citing anyone. Madrid-based Telefonica, Europe’s second-largest phone company, offered on Aug. 5 to buy GVT in a deal valued at 6.7 billion euros.
Umicore SA fell 0.9 percent to 36.50 euros. The world’s largest precious-metals recycler was cut to sell from hold at Deutsche Bank. The Brussels-based company trades at a premium to peers and higher fixed costs in the recycling business may hurt earnings until 2017, the brokerage said. Umicore was valued at 23.6 times reported profit on Aug. 22, compared with 20.5 times for Stoxx 600 chemicals stocks, data compiled by Bloomberg show.