European stocks were little changed this week, near their highest valuation since 2010, amid speculation that the rally in equities has overshot the outlook for corporate earnings and the region’s economy.
SSAB AB sank 11 percent after forecasting an operating loss because of falling demand for strip steel. Opap SA plunged 19 percent after Greece’s government reached an agreement with the European Commission to increase taxes on the company. Telenet Group Holding NV surged 15 percent after Liberty Global Inc made a US$2.5 billion offer to buy the remaining shares that it doesn’t already own.
The STOXX Europe 600 Index slipped 0.1 percent to 275.78 this week, following two weeks of gains. The gauge has still surged 18 percent from this year’s low on June 4, as European Central Bank President Mario Draghi said that he would do everything to protect the euro and speculation mounted that the US Federal Reserve would announce a third round of bond purchases.
“If you cut through this week’s noise, what was very disturbing was the divergence in the purchasing managers’ index figures between France and Germany which shows that Europe is diverging into an A and a B team, with France joining the B team with Italy and Spain,” said Peter Garnry, an equity strategist at Saxo Bank A/S in Copenhagen.
The STOXX 600’s rally this year pushed the gauge’s valuation to 12.3 times the estimated earnings of its constituent companies on Sept. 14, its highest multiple since December 2010, according to data compiled by Bloomberg.
A survey on Thursday showed that France’s manufacturing industry would contract this month more than economists had forecast. The measure, which is based on a purchasing managers’ index (PMI), showed a preliminary reading of 42.6 for this month, less than the median economist estimate of 46.4 in a Bloomberg News survey.
A separate release the same day showed that Germany’s manufacturing index would shrink this month less than predicted. The PMI for Europe’s largest economy climbed to 47.3 from 44.7. That beat the average estimate for a reading of 45.2. A figure below 50 signals that the industry contracted.
The STOXX 600 rebounded on Friday, limiting its decline for the week, after the Financial Times reported that Spain and the European Commission had discussed a package of reforms needed to obtain a bailout for the country.
Spanish Economy Minister Luis de Guindos has held talks with the commission about a series of structural reforms that will be unveiled on Thursday, the Financial Times reported, citing unidentified officials involved in the discussions. The EU needs Spain to meet specific conditions before it can proceed with a bailout of the country.