Bloomberg News

European Stocks Advance as U.S. House Meets on Debt Vote

January 23, 2013

European stocks advanced, after remaining little changed for most of the day, as the U.S. House of Representatives gathered to vote on suspending the country’s debt limit and as results from Novartis to Unilever (ULVR) beat analyst estimates.

Novartis gained 4.1 percent after naming a new chairman and posting fourth-quarter earnings that beat estimates. Unilever rallied to the highest price in at least 24 years as it reported sales growth above forecasts. TUI Travel Plc dropped 4.8 percent after TUI AG abandoned a plan to merge the two companies. Banca Monte dei Paschi di Siena SpA tumbled 8.4 percent.

The Stoxx Europe 600 Index (SXXP) added 0.2 percent to 288.22 in London, as the number of shares rising and those falling were roughly even. The gauge this month surged to the highest level since February 2011 as U.S. lawmakers agreed on a compromise budget and American companies reported better-than-projected earnings.

“The earnings season in Europe is not in full swing yet, so this is a cautionary pause in the markets,” said Manish Singh, who helps manage $2 billion as head of investment at Crossbridge Capital in London. “With the debt ceiling on the verge of extension for three months, markets ought to be more positive. An extension can only be good news and will ease the volatility expectations of investors.”

Nine companies listed on the Stoxx 600 will report earnings later this week and 41 will do so next week. The measure is trading at a price-earnings multiple of 19.3 times reported earnings, the highest since March 2010.

Debt Ceiling

In the U.S., representatives in the Republican-led House are voting to pass legislation suspending the government’s $16.4 trillion debt limit until May 19. By postponing a decision on raising the debt ceiling, Republicans plan to focus on other deadlines to seek deeper spending cuts from President Barack Obama and congressional Democrats.

Global investors said the state of the U.S. government’s finances is the greatest risk to the world economy, a Bloomberg poll showed. About half said they are curbing their investments in response to continuing budget negotiations, according to the quarterly poll on Jan. 17 of investors, analysts and traders who subscribe to Bloomberg.

National benchmark indexes rose in 11 of the 18 western European markets. The U.K.’s FTSE 100 advanced 0.3 percent, while France’s CAC 40 retreated 0.4 percent. Germany’s DAX added 0.2 percent.

Spanish Economy

In Europe, Spain’s recession deepened in the last quarter of 2012, a report showed. Gross domestic product shrank for a sixth quarter, contracting 0.6 percent from the previous three months, the Bank of Spain said in an estimate.

Novartis advanced 4.1 percent to 62.55 Swiss francs, the highest price since August 2008, after saying Chairman Daniel Vasella will step down from the board after 17 years, and Bayer AG’s Joerg Reinhardt will take over as non-executive chairman. Fourth-quarter earnings came in at $1.27 per share, beating projections for $1.25.

Unilever gained 3.1 percent to 2,526 pence in London, the highest price since at least September 1988. The world’s second- biggest consumer-goods company posted fourth-quarter underlying sales growth of 7.8 percent, exceeding the average analyst estimate calling for an increase of 6.2 percent.

Logitech International SA jumped 6.7 percent to 7.20 francs after the maker of computer mice and keyboards said late yesterday it will include a $211 million writedown relating to its video-conferencing business in its third-quarter results, to be announced tomorrow. Logitech may make an exit from its unprofitable LifeSize unit, Vontobel Holding AG said.

Cloud Business

SAP AG (SAP) rose 2.4 percent to 59.20 euros after the biggest maker of business-management software forecast full-year profit will increase at least 12 percent. The company’s cloud, mobile and Hana database businesses are “growing fantastically,” Co- Chief Executive Officer Bill McDermott said in an interview.

Aixtron SE, a German maker of lighting-production equipment, surged 8.5 percent to 11 euros. U.S. peer Cree Inc. posted quarterly earnings that exceeded projections. Cree also said it expects sales of $325 million to $345 million in the current quarter, higher than the $322.6 million estimated by analysts.

TUI Travel slid 4.8 percent to 278 pence as majority shareholder TUI AG ended a plan to combine the two companies, a week after saying they were holding preliminary talks to discuss an all-share merger. TUI AG fell 5.4 percent, the biggest loss in more than seven months, to 7.51 euros.

Monte Paschi tumbled 8.4 percent to 25.4 euro cents. Monte Paschi has declined 15 percent since Bloomberg News reported Jan. 17 that a transaction in December 2008 with Deutsche Bank AG (DBK) at the height of the financial crisis masked losses before it sought a government bailout.

France Telecom SA retreated 2.7 percent to 8.47 euros after Sanford C. Bernstein & Co. lowered its recommendation for the shares to underperform, a rating similar to sell, from market perform. Bernstein said the company’s earnings downgrades, negative re-ratings and dividend uncertainty will continue.

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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