Bloomberg News

European Stocks Advance as Investors Weigh Partial U.S. Shutdown

October 01, 2013

European stocks climbed, rebounding from their biggest decline in a month, as investors assessed the impact of a partial shutdown of the U.S. government.

Telecom Italia SpA rose 5.2 percent after Goldman Sachs Group Inc. reinstated its buy rating on the shares. Vestas Wind Systems A/S gained 6.8 percent after Bank of America Corp. raised its price forecast on the Danish maker of wind turbines. Unilever slid to its lowest price in 10 months as the world’s second-largest consumer-goods maker said sales growth slowed in the third quarter.

The Stoxx Europe 600 Index added 0.8 percent to 312.86 at the close of trading, its biggest rally in three weeks, after a report showed that manufacturing activity in the euro area expanded for a third month in September. The equity benchmark fell by the most since Aug. 30 yesterday as U.S. politicians failed to agree on a compromise budget and Silvio Berlusconi pulled his ministers out of Italy’s coalition government.

“For the moment, the shutdown looks more like noise rather than something that makes a fundamental difference for growth,” Nicola Marinelli, who helps oversee $180 million as portfolio manager at Glendevon King Ltd. in London, said by phone. “If you look at the historical performance of equity indices in previous cases of government shutdown and debt-ceiling standoffs, the data show no clear trend and that equity markets can actually rebound.”

National benchmark indexes advanced in every western-European market except for Britain. Germany’s DAX added 1.1 percent, while France’s CAC 40 Index increased 1.3 percent. The U.K.’s FTSE 100 slipped less than 0.1 percent.

Government Shutdown

The Stoxx 600 gained 8.9 percent in the three months through September, its largest quarterly rally in four years, as a report showed that the euro-area economy escaped from recession and the Federal Reserve decided against reducing its monthly asset purchases.

U.S. lawmakers in Washington missed a midnight deadline to reach a compromise to continue funding the government. The shutdown will put as many as 800,000 federal employees out of work today, closing national parks and halting some government services. The Democrat-controlled Senate earlier voted 54-46 against a funding bill from the Republican-controlled House of Representatives because it made major changes to President Barack Obama’s health-care legislation.

The parties had no immediate plans for further negotiations. Some lawmakers expressed concern that the shutdown could lead to a deadlock over the need to raise the nation’s debt limit to avoid a default. The U.S. will run out of money to pay all of its bills at some point between Oct. 22 and Oct. 31 unless Congress increases the federal government’s borrowing authority, according to the Congressional Budget Office.

Rallying Stocks

The S&P 500 has risen 11 percent on average in the 12 months following a government shutdown, according to data compiled by Bloomberg on the 12 instances since 1976. That compares with an average return of 9 percent over 12 months.

Asian equities advanced after the Bank of Japan’s Tankan index, which surveys confidence among the nation’s large manufacturers, climbed more than economists had estimated. The quarterly gauge rose to 12 in September, its highest level since 2007. Separately, China’s official measure of factory activity increased for a third month.

A report from Markit Economics showed that its euro-zone factory index fell to 51.1 in September, matching the preliminary estimate and the median forecast of 31 economists surveyed by Bloomberg News. Readings greater than 50 mean that manufacturing activity increased.

Telecom Italia

Telecom Italia climbed 5.2 percent to 64.2 euro cents, its highest price since May. The telecommunications operator would gain enough funds to improve its domestic business if it sells at least 4 billion euros ($5.4 billion) of shares or its stake in Tim Participacoes SA (TIMP3) in Brazil, according to Goldman Sachs.

Vestas jumped 6.8 percent to 148.50 kroner. Bank of America raised its price estimate to 180 kroner from 150 kroner, predicting that the company will pay off almost all its debt by 2015, earlier than the consensus forecast.

Wolseley Plc (WOS) added 3.1 percent to 3,296 pence, its largest gain in more than five weeks. The world’s biggest distributor of plumbing and heating products said so-called trading profit in the 12 months through July climbed to 725 million pounds ($1.2 billion) from 665 million pounds a year earlier. Analysts had predicted earnings of 704 million pounds, according to the average of 20 estimates compiled by the company. Wolseley proposed a special dividend payout of 300 million pounds.

Brintellix Approval

H. Lundbeck A/S rose 2.6 percent to 123.30 kroner, its highest price in 14 months. The U.S. Food and Drug Administration approved Brintellix, which is marketed by Denmark’s second-biggest drugmaker and Takeda Pharmaceutical Co., as a treatment for people with depression.

Unilever (UNA) slipped 2.8 percent to 27.94 euros after saying sales growth slowed as trading in emerging markets deteriorated at a faster rate. Underlying group sales for the three months will rise 3 percent to 3.5 percent, the maker of Lipton tea and Dove soap said late yesterday in a statement. That compares with 5 percent growth in both the first half and second quarter.

A gauge of commodity producers declined 0.9 percent as gold fell 2.9 percent and silver dropped 4.2 percent. Fresnillo Plc and Randgold Resources Ltd., which mine precious metals, lost 5 percent to 924.5 pence and 2.5 percent to 4,338 pence, respectively.

To contact the reporter on this story: Inyoung Hwang in London at ihwang7@bloomberg.net

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


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