European stocks rose for the first week in five as US Federal Reserve Chairman Ben Bernanke indicated the economy was not deteriorating enough to warrant any immediate stimulus.
The STOXX 600 Europe Index advanced 1.1 percent to 225.52 this week. The gauge had fallen to the lowest level in two years on Aug. 19 amid concern the global economic recovery was at risk, driving its valuation near the cheapest relative to estimated earnings since March 2009, according to data compiled by Bloomberg. The measure is still down 23 percent from this year’s peak on Feb. 17.
“The fact that the Fed didn’t announce a third round of stimulus is a sign that the economy isn’t doing too badly,” said Arnaud Scarpaci, a fund manager at Agilis Gestion SA in Paris, which oversees about US$110 million. “It’s good news and is reassuring the market. The encouraging thing is that a lot of people were speculating about a recession and the economic statistics only show a slowdown.”
The STOXX 600 climbed to a one-week high on Wednesday after a US Department of Commerce report showed that US orders for durable goods rose more than forecast last month. Orders climbed 4 percent, the most in four months, after falling a revised 1.3 percent in June. The index declined in the final two days of the week.
The Fed still has tools to stimulate the economy, Bernanke said in a speech on Friday at an annual forum in Jackson Hole, Wyoming, without signaling when or whether policymakers might deploy them. He said a second day has been added to the next policy meeting next month to “allow a fuller discussion” of the economy and the Fed’s possible response.
“It looks like some market participants see the Jackson Hole comments as somehow positive in that Bernanke reaffirmed that the ‘Fed will certainly do all it can to help restore high rates of growth and employment in a context of price stability,’” said Stephane Ekolo, chief European strategist at Market Securities in London. “But will it be enough, or is the market just blinding itself because it doesn’t want to lose hope or faith?”
Less than two hours before Bernanke’s speech on Friday, the US government reported that the economy expanded at a 1 percent annual rate in the second quarter, compared with an initial estimate of 1.3 percent.
The global economy has a “50 percent” chance of slipping into recession as Europe and the US struggle to grow, according to Nobel laureate Michael Spence, who spoke in a Bloomberg Television interview in Hong Kong on Thursday.
“I’m quite worried,” said Spence, a professor at New York University’s Stern School of Business. “A combined downward dip in Europe and America, which is a good chunk of the industrialized economies, I’m quite sure will take down growth in China particularly, and that will then immediately spread to the rest of the emerging economies.”