Bloomberg News

European Stocks Advance for Fifth Week; Arkema Rallies

July 06, 2012

European stocks rose for a fifth week as investors bet central banks would add to measures to stimulate economic growth, with the Stoxx Europe 600 Index paring some gains on concern that risks to a recovery remain.

Arkema SA (AKE) jumped 15 percent after FT Alphaville reported the French maker of specialty chemicals and additives received takeover approaches. GKN Plc (GKN), the British maker of parts for Airbus SAS airplanes, surged 15 percent after buying Volvo AB’s aircraft-engine unit.

The Stoxx 600 climbed 1.3 percent to 254.4 this week, for the longest stretch of gains since January. The benchmark measure has rallied 8.8 percent from this year’s low on June 4 after policy makers, meeting in Brussels last month, eased repayment rules for Spanish banks and relaxed conditions for possible aid to Italy.

“Monetary easing by the U.K., China’s anticipated rate cut and the lingering good sentiment after the EU summit supported the markets,” said Manish Singh, the London-based head of investment at Crossbridge Capital, which has more than $2 billion under management. “There’s an accepted view that bad news is also good news. So bad economic data made some investors think there’s help on the way.”

National benchmark indexes climbed in 11 of the 18 western European markets this week. The U.K.’s FTSE 100 increased 1.6 percent, France’s CAC 40 fell 0.9 percent and Germany’s DAX lost 0.1 percent. Italy’s FTSE MIB dropped 3.8 percent and Spain’s IBEX 35 retreated 5.1 percent.

Central Banks

The European Central Bank cut its main refinancing rate to 0.75 percent from 1 percent, as predicted by 49 of 64 economists in a Bloomberg News survey, and cut its deposit rate to zero from 0.25 percent.

Speaking after the decision was announced, ECB President Mario Draghi said some “downside risks to the euro-area economic outlook have materialized” and “economic growth in the euro area continues to remain weak.”

China cut benchmark interest rates for the second time in a month and allowed banks to offer bigger discounts on their lending costs. The one-year lending rate fell by 31 basis points and the one-year deposit rate dropped by 25 basis points.

The Bank of England’s Monetary Policy Committee raised its asset-purchase target by 50 billion pounds ($78 billion) to 375 billion pounds. Thirty out of 41 economists had forecast the move in a Bloomberg survey.

U.S. Payrolls

In the U.S., a Labor Department report showed that employers hired fewer workers that forecast in June. Payrolls rose 80,000 last month after a 77,000 increase in May. That missed the median estimate in a Bloomberg News survey that called for a gain of 100,000. Private hiring added 84,000 in June, the weakest in 10 months, while the jobless rate held at 8.2 percent.

In China, the government’s Purchasing Managers’ Index fell to 50.2 in June from 50.4 in May, the National Bureau of Statistics and China Federation of Logistics and Purchasing reported on July 1. A separate PMI, compiled by HSBC Holdings Plc and Market Economics, posted a final reading of 48.2 in June compared with 48.4 in May, according to figures released the next day.

“There’s still some uncertainty in the air,” Singh said. “Unless growth measures are put in place or growth picks up, the struggles of peripheral Europe will keep resurfacing as band aids gradually come off.”

European Equities

Morgan Stanley’s European Equity Strategy team including Graham Secker, Ronan Carr and Matthew German raised the region’s equities to neutral from underweight on July 2, saying the decisions at the European Union summit had lowered risk.

Arkema, which sold an unprofitable vinyls business, jumped 15 percent as FT Alphaville reported the company received takeover approaches valuing it at 5.5 billion euros ($6.8 billion) or more. The company has drawn interest from DuPont Co. and BASF SE, FT Alphaville reported, citing “usually knowledgeable sources.”

GKN rallied 15 percent after agreeing to buy Volvo’s aircraft-engine unit for 633 million pounds. GKN said it will raise 140 million pounds in a share sale to help pay for the purchase.

Chr. Hansen Holding A/S (CHR) surged 15 percent after the Danish maker of natural food colors and cheese cultures reported earnings that exceeded estimates. Third-quarter net income was 34.6 million euros, beating the average estimate of 33.1 million euros in a Bloomberg News survey of eight analysts. The company also predicted higher revenue growth for the fiscal year ending Aug. 31.

Volkswagen, Porsche

Volkswagen AG (VOW), Europe’s largest carmaker, climbed 5.5 percent after agreeing to buy the controlling stake in Porsche’s automotive business for 4.46 billion euros. The transaction enables VW to fully incorporate Porsche’s automotive business into its stable of brands. Porsche added 2.1 percent.

Italian and Spanish banks sent a gauge of European lenders 1.4 percent lower for the second-worst group performance on the Stoxx 600. (SXXP) UniCredit SpA (UCG) and Banco Popular Espanol SA (POP) slumped 11 percent and 8.8 percent, respectively. Intesa Sanpaolo SpA (ISP) fell 9.5 percent, while Banco Bilbao Vizcaya Argentaria SA (BBVA) lost 8 percent.

Man Group Plc (EMG) declined 16 percent as JPMorgan & Chase Co. cut its price estimate for the world’s largest publicly traded hedge-fund manager by 55 percent to 45 pence, citing a “disappointing” investment performance by the Man AHL Diversified fund in the second quarter.

Separately, Credit Suisse Group AG cut the stock to neutral from outperform and Societe Generale SA downgraded its recommendation for the stock to hold from buy.

Rhoen Klinikum AG (RHK) slumped 12 percent as Fresenius SE said its tender offer failed to win enough shareholder support because rival Asklepios Kliniken GmbH took a 5 percent stake in Rhoen. About 84 percent of Rhoen Klinikum shares were tendered in the offer, Fresenius said after the market closed on June 29. The 22.50 euro-a-share bid was contingent on garnering at least 90 percent of the stock.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

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


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