Bloomberg News

European Stocks Pare Gains on Bundesbank View

August 01, 2012

European Stocks Gain on Speculation of Central Bank Assistance

Visitors pass through the main entrance of the London Stock Exchange Group Plc's headquarters as the company holds its first ever charity trading day in London. Photographer: Jason Alden/Bloomberg

European stocks rose as speculation central banks will take further steps to support the economic recovery outweighed a contraction in U.K. manufacturing. U.S. index futures advanced, while Asian shares retreated.

Next Plc (NXT) jumped 6.1 percent as the retailer increased its annual profit forecast after reporting first-half sales that rose more than analysts estimated. Arkema SA (AKE) climbed 6.8 percent as second-quarter earnings beat estimates. Mediaset SpA (MS) dropped 10 percent after profit declined 65 percent amid lower advertising sales.

The Stoxx Europe 600 Index (SXXP) increased 0.2 percent to 261.87 at 10:49 a.m. in London, the fourth increase in five days. The benchmark measure has rallied 12 percent from this year’s low on June 4 as German Chancellor Angela Merkel and French President Francois Hollande last week joined European Central Bank President Mario Draghi in promising to do everything to protect the euro.

“Markets are clearly being driven by the expectation of further central-bank intervention,” said Peter Garnry, an equity strategist at Saxo Bank A/S in Copenhagen. “Everyone is expecting Draghi to launch another round of secondary-market purchases to get yields on Spanish and Italian bonds lower.”

Futures on the Standard & Poor’s 500 Index (SPX) advanced 0.3 percent today, while the MSCI Asia Pacific Index declined 0.3 percent. Markets in Switzerland are closed for a holiday.

ECB Mandate

The Stoxx 600 pared an earlier gain of as much as 0.5 percent as Bundesbank President Jens Weidmann said the ECB shouldn’t exceed its mandate.

The ECB’s independence “requires it to respect and not overstep its own mandate,” Weidmann said in an interview with former central bank chief Helmut Schlesinger that was conducted on June 29 and published on the Bundesbank’s website today. “We are the largest and most important central bank in the Eurosystem and we have a greater say than many other central banks.”

A gauge of U.K. factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, fell to 45.4 last month from a revised 48.4 in June, Markit said today. That’s the lowest in 38 months. The median forecast of 30 economists in a Bloomberg News survey was 48.4. A reading below 50 indicates contraction.

The Purchasing Managers’ Index in China unexpectedly fell to 50.1 in July, the weakest in eight months, from 50.2 in June, a government report showed today. Fifty marks the dividing line between expansion and contraction. South Korea’s exports slid by more than double the amount forecast by analysts.

U.S. Economy

In the U.S., the Institute for Supply Management’s manufacturing index rose to 50.2 last month from 49.7 in June, according to the median estimate of 83 economists surveyed by Bloomberg News. Fifty marks the dividing line between expansion and contraction. Construction spending probably climbed in June for a third month, other data may show.

The Federal Reserve will conclude a two-day policy meeting today. The U.S. central bank has carried out two rounds of so- called quantitative easing since Lehman Brothers Holdings Inc. collapsed in 2008, buying $2.3 trillion in bonds to boost the economy.

Bearish options on European stocks have fallen to the cheapest levels compared with bullish ones in 19 months as traders bet that Draghi will deliver on his promise to save the euro. The ECB will hold its next policy meeting tomorrow.

‘Hands Out’

“During the next two days, market attention will be firmly focused on the world’s central banks,” said Jonathan Sudaria, a trader at Capital Spreads in London. “The recent run of bad economic data around the globe and the turmoil in Europe has had traders instinctively looking to central banks for salvation with their hands out for some more monetary stimulus.”

Next jumped 6.1 percent to 3,414 pence. The U.K.’s second- largest clothing retailer increased its annual profit forecast after first-half sales rose more than analysts estimated, driven by a surge in online and catalog sales.

Arkema climbed 6.8 percent to 63.93 euros after reporting second-quarter earnings before interest, taxes, depreciation, and amortization of 306 million euros ($377 million), beating analyst estimates of 272.6 million euros.

Standard Chartered Plc (STAN) added 3.7 percent to 1,519 pence after the U.K. bank that gets most of its revenue from Asia posted an 11 percent gain in first-half profit.

Nokia Rises

Nokia Oyj (NOK1V), the mobile-phone maker struggling to stem losses amid plunging sales, jumped 10 percent to 2.15 euros. The shares have rallied 57 percent since July 19, when the company reported sales of its flagship Lumia smartphone that exceeded analysts’ estimates.

Chief Executive Officer Stephen Elop and several Nokia directors last week bought more than $1 million in stock. Almost 16 percent of the company’s shares were on loan as of July 30, an indication of short interest, according to data compiled by Markit.

Mediaset slumped 10 percent to 1.28 euros, the largest decline in almost three months. The broadcaster controlled by former Italian Prime Minister Silvio Berlusconi said second- quarter net income fell to 32.7 million euros from 94.4 million euros a year earlier. Analysts in a Bloomberg survey had estimated profit of 31.9 million euros.

To contact the reporter on this story: Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net

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


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