European stocks posted their biggest weekly gain in a month as the US unemployment rate dropped to the lowest level since January 2009 and stress tests bolstered confidence in the Spanish banking system.
The STOXX Europe 600 Index rose 2.1 percent to 274.11 this past week, the largest increase since the period ended on Sept. 7. The benchmark measure has advanced 12 percent this year as European Central Bank (ECB) policymakers approved a plan to buy the bonds of the most-indebted eurozone members and the US Federal Reserve unveiled a third round of stimulus measures.
“Equities are going up, house prices are going up and now unemployment is going down,” said Jacob de Tusch-Lec, a London-based money manager at Artemis Investment Management LLP. “You have all these three things happening at the same time and that is a very potent picture. The wealth effect is alive.”
National benchmark indeces advanced in all 18 western European markets, except Iceland. Germany’s DAX index added 2.5 percent, the UK’s FTSE 100 gained 2.3 percent and France’s CAC 40 increased 3.1 percent. Greece’s ASE Index jumped 12 percent, the most in almost four months.
Spanish Prime Minister Mariano Rajoy said he has no plans to ask for a bailout soon, in response to mounting speculation that a request was imminent.
Still, Spain’s budget for next year, presented this week, assumes the economy will shrink 0.5 percent, less than the 1.3 percent median contraction predicted by 21 analysts surveyed by Bloomberg.
“Investors are preparing for the inevitable Spanish request for a bailout,” said Graham Bishop, an equity strategist at Exane BNP Paribas in London.
The ECB and the Bank of England left their benchmark interest rates on hold, while eurozone retail sales unexpectedly increased for a fourth month in August as demand rebounded in Germany, Europe’s largest economy.
A gauge of European lenders had the second-biggest advance among 19 industry groups in the STOXX 600 this week as stress tests commissioned by the EU and the Spanish government bolstered confidence.
The International Air Transport Association raised its global airline-profit forecast for the year by 37 percent as carriers slow capacity growth to cope with higher fuel prices and waning travel demand.
STOXX 600 automakers advanced 5.1 percent this week, for the biggest gain among the 19 industry groups. BMW added 7.2 percent, the most in eight months, after the largest maker of luxury cars said group sales in China rose 59 percent last month, easing investors’ concerns that the world’s biggest automotive market is slowing.