Bloomberg News

European Stocks Advance After Merkel, Hollande Statement

July 27, 2012

European Stocks Climb on Company Earnings, Stimulus Speculation

Visitors pass through the main entrance of the London Stock Exchange Group Plc's headquarters in London. Photographer: Jason Alden/Bloomberg

European stocks advanced for a second day after German Chancellor Angela Merkel and French President Francois Hollande said they would do anything to protect the euro, the U.S. economy grew more than forecast, and companies posted earnings that topped estimates.

Total, France’s biggest oil producer, and Barclays, (BARC) the U.K.’s second-largest bank by assets, climbed more than 3 percent each. PPR SA (PP), the French owner of the Gucci luxury brand, added 6.6 percent as recurring operating income increased 20 percent. European Aeronautic, Defence & Space Co. rose 5.7 percent as first-half profit jumped 89 percent and it lifted its full-year earnings forecast.

The Stoxx Europe 600 Index (SXXP) gained 1.3 percent to 259.81 at the close of trade, after earlier dropping as much as 0.3 percent. The measure advanced for an eighth week, adding 0.6 percent, the longest winning streak since January 2006.

“We are optimistic that corporate earnings in Europe could slowly bottom after the weak previous quarters,” said Joachim Klement, chief financial officer at Wellershoff & Partners Ltd. in Zurich. “Besides earnings, the markets have hopes for further central bank stimulus. We see a tendency for decreasing uncertainty in the short-term and rising prices in the coming weeks.”

National benchmark indexes climbed in all of the 18 western-European markets except Iceland. The U.K.’s FTSE 100 Index added 1 percent, while Germany’s DAX Index gained 1.6 percent. France’s CAC 40 Index rallied 2.3 percent and Italy’s FTSE MIB advanced 2.9 percent.

Draghi Boost

The Stoxx 600 yesterday posted the biggest advance in almost a month after ECB President Mario Draghi said policy makers will do whatever it takes to preserve the euro.

Merkel and Hollande said their countries are “bound by the deepest duty” to keep the euro area intact and that they will do “everything” necessary to protect the single currency.

In a joint statement made after a telephone conference today, they also said that the 17 members of the euro as well as institutions must fulfil their commitments “within their own areas of competence.”

France and Germany both seek “quick” implementation of resolutions made at a June 28-29 European Union summit, the statement said.

U.S. Growth

The U.S. economy expanded at a slower pace in the second quarter as a softening job market prompted Americans to curb spending. Gross domestic product, the value of all goods and services produced, rose at a 1.5 percent annual rate after a revised 2 percent gain in the prior quarter, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 1.4 percent increase.

In Japan, consumer prices excluding fresh food fell 0.2 percent in June from a year earlier, the statistics bureau said in Tokyo today. The median estimate in a Bloomberg News survey was for no change in prices. Retail sales rose 0.2 percent, a separate report showed, the smallest gain since November and less than a median forecast for a 1.1 percent increase.

Bank of Japan Governor Masaaki Shirakawa has said the central bank will pursue “powerful monetary easing” until its 1 percent inflation goal set in February is in sight.

“With Japan struggling to come anywhere near the mandated inflation level, the pressure is also gathering on the BoJ for more quantitative easing,” Jonathan Sudaria, a dealer at Capital Spreads in London, wrote in a note.

Total Gains

Total (FP) advanced 3.4 percent to 37.35 euros. Profit excluding changes in inventories and the value of a stake in Sanofi- Aventis SA climbed to 2.9 billion euros ($3.57 billion) in the second quarter from 2.8 billion euros a year earlier, the Paris- based company said. That compared with the 2.85 billion-euro average estimate of 11 analysts surveyed by Bloomberg.

Barclays, the British bank searching for a new management team in the wake of the Libor scandal, jumped 8.7 percent to 167 pence. Pretax profit excluding debt-valuation adjustments and other one-time items for the six months ended June 30 rose 13 percent to 4.2 billion pounds ($6.6 billion). That beat the 3.9 billion-pound median estimate of eight analysts surveyed by Bloomberg.

PPR added 6.6 percent to 120.75 euros, the largest gain since May 2010, as it reported first-half recurring operating income of 815.3 million euros, exceeding the median estimates of seven analysts compiled by Bloomberg for 785 million euros. PPR said that it’s confident full-year growth will exceed that of 2011 as it steps up emerging-markets expansion.

EADS Profit

EADS (EAD) soared 5.7 percent to 29.81 euros. Earnings before interest and taxes rose to 1.4 billion euros from 720 million euros a year earlier, excluding non-recurring charges and currency movements. That was more than the average projection of 881 million euros.

Michelin & Cie. (ML) gained 7.7 percent to 55.16 euros as the world’s second-largest tiremaker said first-half profit jumped 36 percent. Operating income, excluding one-time gains and losses, advanced to 1.32 billion euros from 971 million euros a year earlier. Analysts had expected operating profit of 1.28 billion euros.

Renault SA (RNO), France’s second-biggest carmaker, climbed 6.4 percent to 35.94 euros as it reported earnings before interest, taxes and one-time items of 482 million euros, beating the 363 million-euro average estimate of seven analysts surveyed by Bloomberg.

Cie. de Saint-Gobain SA, Europe’s biggest supplier of building materials, plunged 11 percent to 24.55 euros, its biggest drop since February 2009, as it reduced its full-year outlook because of Europe’s economic crisis.

Vallourec SA (VK) slumped 7.5 percent to 32.96 euros as the producer of steel pipes for the oil and gas industry reported a 50 percent decline in second-quarter profit.

Anglo American Plc (AAL), the operator of mines from Chile to Zimbabwe, dropped 3.6 percent to 1,894 pence, the lowest price since October 2009. The company said first-half earnings slid 46 percent, more than analysts expected, as commodity prices declined.

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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