Bloomberg News

European Stocks Climb Amid Optimism on U.S. Budget Talks

November 29, 2012

U.S. President Barack Obama

U.S. President Barack Obama. Photographer: Andrew Harrer/Bloomberg

European stocks rallied to their highest in 17 months as optimism grew that U.S. President Barack Obama will reach an agreement with Congress on a new budget.

Rio Tinto Group gained 5.1 percent after the world’s second-largest mining company said it will reduce costs by $5 billion during 2013. Invensys Plc surged 8.9 percent as RBC Capital wrote that the company may be acquired after selling its rail unit to Siemens AG. Electricite de France SA slid 1 percent as the country’s highest court ruled that the utility has overcharged households.

The Stoxx Europe 600 Index advanced 1.2 percent to 276.31 at the close in London, its highest level since June 1, 2011. The equity benchmark erased a decline of as much as 0.6 percent yesterday as Republican House Speaker John Boehner expressed optimism that Congress will reach a deal to prevent the so- called fiscal cliff coming into force.

“The President is on strong ground, having defeated his Republican challenger, and the House Speaker is sounding conciliatory too,” said Manish Singh, who helps manage $2 billion as head of investment at Crossbridge Capital LLP in London. “A deal is a certainty. News on the fiscal cliff has been incrementally positive, so investors are increasingly optimistic too.”

Fiscal Cliff

Obama said after European (SXXP) markets closed yesterday that the two political parties can agree on a framework for a budget deal to prevent $607 billion of automatic tax increases and spending cuts from coming into effect in January.

“My hope is to get this done before Christmas,” he said at the White House. A Bloomberg Global Poll conducted on Nov. 27 found that three out of four investors expect Republicans and Democrats to reach a short-term agreement.

A European Commission report showed that economic confidence in the euro area climbed in November from a three- year low. The index of executive and consumer sentiment in the region increased to 85.7 from a revised 84.3 in October. Economists had forecast the gauge would be unchanged from an initial reading of 84.5.

Another release showed German unemployment rose less this month than economists had predicted. The number of people without jobs increased 5,000 to 2.94 million, the Federal Labor Agency said. Economists had forecast joblessness would climb by 16,000, according to the average estimate in a Bloomberg survey.

Goldman Forecast

The Stoxx 600 will advance to 310 by the end of 2013 and earnings will grow 9 percent, Goldman Sachs Group Inc. strategists led by Peter Oppenheimer wrote in a report. That indicates a rally of 13 percent from yesterday’s close.

The gauge has surged 18 percent from this year’s low on June 4 as the European Central Bank announced an unlimited bond- buying plan and the Federal Reserve began a third round of asset purchases in the U.S.

National benchmark indexes advanced in every western- European market except Greece. The U.K.’s FTSE 100 climbed 1.2 percent, France’s CAC 40 gained 1.5 percent and Germany’s DAX added 0.8 percent.

Rio Tinto jumped 5.1 percent to 3,090 pence after saying it will cut $5 billion from operating and support costs next year. The mining company also said that it will increase production at its iron ore, copper and alumina units.

Invensys Plc (ISYS) soared 8.9 percent to 305 pence. The maker of software for London Underground trains will probably be acquired after completing the sale of its rail-signaling division to Siemens AG, RBC said. After the close of European trading yesterday, Invensys said it agreed to sell the unit to Siemens for 1.74 billion pounds ($2.8 billion).

Invensys Sale

The British company will use the proceeds to reduce its pension deficit, making it easier for an acquirer to buy the business, RBC analyst Andrew Carter wrote. He upgraded the stock to outperform, the equivalent of buy, from underperform.

Barclays Plc and Bank of America Corp. also recommended buying the shares. Invensys posted its biggest two-day rally since at least 1988.

Zurich Insurance Group AG gained 2.5 percent to 236.50 Swiss francs after Chief Executive Officer Martin Senn promised investors an “attractive and sustainable dividend.”

Volkswagen AG (VOW) added 1.3 percent to 165.80 euros, its highest price in at least 20 years, after Europe’s largest carmaker said it will extend its partnership with China’s FAW Group beyond 2016, when the existing contract expires. The new joint venture will run for an additional 25 years. Both companies concluded that neither side has infringed on technology patents, Volkswagen said.

Banco Popular

Banco Popular Espanol SA (POP) climbed 5 percent to 65.7 euro cents after saying it completed a 2.5 billion-euro ($3.2 billion) share sale to help cover a capital shortfall uncovered by stress tests of Spanish banks. The stock has surged 21 percent over the last three days.

Eiffage SA (FGR), which controls the APRR toll-road business, soared 9.6 percent to 30.20 euros. A Paris court will rule today on whether Eiffage can compulsorily purchase APRR shares, according to a spokesman for the unit. Eiffage said on April 18 that it would buy the remaining stake by the end of the year if it won the court’s approval.

Electricite de France slid 1 percent to 14.13 euros after the Conseil d’Etat ruled that the utility overcharged its customers. A group of about 80 communities that distribute power to consumers said that EDF overcharged by 8.8 billion euros.

Gemalto NV (GTO) dropped 2.8 percent to 70.30 euros after Morgan Stanley advised investors to take profits. The inventor of smart chips used in bank and phone cards will probably not forecast earnings for 2013 that beat estimates, analysts led by Andrew Humphrey wrote in a report, downgrading the shares to equal weight, the equivalent of hold, from overweight.

The VStoxx Index, which measures volatility on the benchmark Stoxx Europe 50 Index, slid 4.5 percent to 16.49, its lowest level since June 2007.

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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