Bloomberg News

European Stocks Rise for Third Week After Greek Election

June 22, 2012

European (SXXP) stocks rose for a third week as Greece formed a coalition government of parties prepared to abide by the terms of the country’s two bailouts, increasing optimism that the nation will remain in the euro.

Air France-KLM Group rallied 17 percent after announcing a plan to cut jobs at its Air France unit. Aer Lingus Group Plc soared 14 percent after receiving a bid from Ryanair Holdings Plc (RYA), which added 5.5 percent. Danone plunged 8.4 percent after the world’s biggest yogurt maker cut its profitability forecast.

The Stoxx Europe 600 Index added 1 percent to 246.58 this past week, completing its longest stretch of weekly gains since January. The gauge retreated 0.7 percent on June 22 as a measure of German business confidence slid to its lowest level in more than two years. The equity benchmark has risen 5.4 percent from this year’s low on June 4, giving it a valuation of 10.3 times estimated earnings, according to data compiled by Bloomberg.

“The Greek election takes a bit of pressure off the debt crisis,” said Mike Lenhoff, chief strategist at Brewin Dolphin Securities Ltd. in London, “The immediate implication is that it diminishes the risk of Greece leaving the euro zone and of contagion. The ground’s being laid out for some more progress.”

Antonis Samaras, leader of Greece’s New Democracy party, became prime minister on June 20 after agreeing to form a coalition with the Socialist Pasok party and the Democratic Left. New Democracy won the June 17 election -- Greece’s second in six weeks -- with almost 30 percent of the vote.

Spanish Debt

Spain sold more debt than it had planned in two separate auctions this past week. The country sold 2.2 billion euros ($2.8 billion) of bonds on June 21, compared with its maximum target of 2 billion euros, and 3.04 billion euros of notes on June 19. That exceeded the 3 billion-euro maximum target that the government had set for the auction.

Yields on the Mediterranean nation’s benchmark 10-year securities retreated to 6.38 percent after surging to a euro-era record of 7.29 percent on June 18. Greece, Ireland and Portugal asked the European Union for bailouts after their borrowing costs climbed above 7 percent.

In Germany, the Ifo Institute’s business-climate index dropped more than economists had estimated. The gauge, based on a survey of 7,000 executives, slipped to 105.3 in June from 106.9 in May, its lowest reading since March 2010. Economists had predicted a decline to 105.6, according to the median of 39 estimates in a Bloomberg News survey.

Federal Reserve

In the U.S., the Federal Reserve cut its forecast on June 20 for the world’s largest economy, predicting growth of 1.9 percent to 2.4 percent this year, down from an April forecast of 2.4 percent to 2.9 percent. Chairman Ben S. Bernanke said progress in the labor market has slowed.

The Federal Open Market Committee extended its Operation Twist program, which aims to reduce borrowing costs. The Fed will swap $267 billion of short-term securities with longer-term debt by the end of 2012.

In China, a purchasing managers’ index from HSBC Holdings Plc and Markit Economics on June 21 gave a preliminary reading of 48.1 for this month, indicating that manufacturing in the world’s second-biggest economy will shrink for an eighth month. Readings below 50 mean the industry contracted.

A gauge of travel and leisure company shares posted the best performance of the 19 industries on the Stoxx 600 this past week. Air France-KLM rallied 17 percent after saying on June 21 that it will eliminate more than 5,000 jobs, equivalent to 10 percent of posts at the Air France unit.

Aer Lingus

Aer Lingus (AERL) surged 14 percent after Ryanair, Europe’s biggest budget airline, made a 694 million-euro bid for its Irish rival on June 19. Ryanair owns 29.8 percent of Aer Lingus. The company, which has twice failed to acquire Aer Lingus, gained 5.5 percent this past week.

Hennes & Mauritz AB (HMB) soared 9.6 percent after posting its biggest profit increase in seven quarters. Europe’s second- largest clothing retailer reported on June 20 a 23 percent jump in second-quarter profit to 5.22 billion kronor ($744 million). That exceeded the average analyst estimate of 4.86 billion kronor, according to data compiled by Bloomberg.

Cable & Wireless Worldwide Plc climbed 8 percent after its largest investor Orbis Holdings Ltd. said on June 18 it will accept Vodafone Group Plc’s takeover offer of 1.04 billion pounds ($1.6 billion). The mobile-phone operator added 2.3 percent this past week.

Danone slumped 8.4 percent after the company said on June 19 that its operating margin will decline by 50 basis points in 2012 on a like-for-like basis. The maker of Actimel yogurt had forecast a stable margin.

Royal KPN NV plunged 10 percent, its biggest weekly decline since October 2008, after abandoning talks on June 20 to combine its German business with a rival. That enabled Carlos Slim’s America Movil SAB to succeed with an unsolicited bid for a 21 percent stake in the former Dutch phone monopoly.

Solvay SA (SOLB) slipped 6.9 percent after Citigroup Inc. advised investors to sell the stock. The brokerage cut its estimate for the shares to 75 euros from 100 euros.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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