European Stocks Post Fifth Weekly Rally; Barclays, Societe Generale Jump
Monday, 23 January 2012 | 00:00
European (SXXP) stocks rose for the fifth straight week amid signs the U.S. economy is recovering, and amid speculation the euro area will contain its debt crisis and China will reduce curbs on lending.
Bayerische Motoren Werke AG (BMW), Societe Generale SA and Barclays Plc led a rally among carmakers and banks, climbing more than 8 percent. Carnival Corp. tumbled 12 percent in London after a ship belonging to the world’s largest cruise owner ran aground off the coast of Italy, killing at least 11 people.
The Stoxx Europe 600 Index rose 2.7 percent to 255.85 this past week. The benchmark measure slipped 0.3 percent on Jan. 20, falling from a five-month high. The gauge has climbed 4.6 percent so far in 2012 for its best start to a year since 1997.
“The U.S. appears to be on the right track at the moment,” said Peter Dixon, a global equities economist at Commerzbank AG in London. In China, “the authorities have the scope to unwind the monetary tightening they put in place last year.” He spoke in a Bloomberg Television interview.
Investors’ expectations for global growth increased in January to the highest level since July, according to a Bank of America Corp. survey published on Jan. 17. The investors, who manage a total of $655 billion of assets, increased their overweight allocation to U.S. equities, while European (SXXP) and Japanese stocks remained out of favor.
China’s Economic Growth
A report on Jan. 17 showed that China’s economy, the world’s second biggest, expanded in the fourth quarter at its slowest pace since 2009. Investors speculated that the slowdown will increase pressure on Premier Wen Jiabao to ease monetary policy. The People’s Bank of China injected 353 billion yuan ($55.7 billion) into the financial market this week using 14-day reverse-repurchase contracts, the most since Bloomberg began collecting the data in early 2008.
In the U.S., a Labor Department report on Jan. 19 showed that claims for jobless benefits plunged by 50,000 to 352,000 in the week ended Jan. 14, the lowest number since April 2008. The median forecast of 41 economists in a Bloomberg News survey had called for a reading of 384,000.
European shares rallied this week as Spain and France sold bonds on Jan. 19 at lower yields. France auctioned 7.97 billion euros ($10.3 billion) of two-, three- and four-year notes in its first sale of medium- and long-term debt since Standard & Poor’s downgraded the country’s credit rating on Jan. 13. Yields fell on all maturities.
Spain sold 6.6 billion euros of bonds maturing in 2016, 2019 and 2022, more than the target for the sale of 4.5 billion euros. The yields on the 2022 and 2019 securities declined, while borrowing costs on the 2016 notes increased. S&P cut Spain’s rating by two notches on Jan. 13.
Greece Debt Swap
Greece’s government held a third day of talks with its private creditors on a debt-swap deal to lower the country’s borrowing and free up a second round of international aid. An agreement was struck in October to implement a 50 percent cut in the face value of Greek debt by voluntarily exchanging outstanding bonds for new securities, with a goal of reducing the Mediterranean nation’s borrowing to 120 percent of gross domestic product by 2020. An accord with bondholders is key to a second financing package for the cash-strapped country, which faces a 14.5 billion-euro bond payment on March 20.
A report on Jan. 17 showed that German investor confidence jumped by the most on record this month. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, surged to minus 21.6 in January from minus 53.8 in December, the biggest gain since the index started in December 1991. Economists had forecast a reading of minus 49.4, the median of 39 estimates in a Bloomberg News survey showed.
BMW, Daimler, Renault
BMW, the world’s biggest luxury carmaker, rallied 8.8 percent. Daimler AG, the third-largest maker of luxury vehicles, soared 11 percent and Renault SA rose 8.9 percent. Fiat SpA, Italy’s biggest carmaker, jumped 14 percent. Automakers surged 8.9 percent this week for the best performance among the 19 industry groups on the Stoxx 600.
Banks rallied 8.7 percent the second-biggest advance among Stoxx 600 groups. Barclays gained 11 percent, Societe Generale jumped 29 percent and Intesa Sanpaolo SpA rose 11 percent.
Alstom SA surged 17 percent after predicting a rebound in orders this quarter. An Israeli power-equipment project and demand for rail carriages in Latin America allowed the French manufacturer to stick to its profitability forecasts.
Carnival Shares Drop
Carnival tumbled 12 percent, its biggest weekly slide since November 2008. The company halted advertising for its Carnival Cruise Lines business at the start of the cruise industry’s peak booking season. The company also announced a review of safety and emergency procedures after the Costa Concordia, carrying 4,200 passengers and crew, ran aground off the coast of Tuscany. Some 20 people are still missing and the ship’s captain is under house arrest.
Essar Energy Plc slumped 28 percent after India’s Supreme Court on Jan. 17 overturned an earlier ruling that allowed the company’s Essar Oil Ltd. unit to defer the payment of sales tax.
“Assuming Essar is required to repay the tax collected immediately, we see an approximately $800 million cash requirement,” Lucas Herrmann and James Brand, analysts at Deutsche Bank AG in London, said on Jan. 18 in a note.