European stocks advanced for a fourth week as companies from BP LC to Alcatel-Lucent SA posted results that exceeded estimates, while cooling inflation fueled speculation the European Central Bank (ECB) may ease monetary policy.
BP posted its best week in 23 months after the oil producer increased its dividend. Alcatel-Lucent rallied 18 percent after predicting it would beat its cost-cutting targets this year and reporting a narrower-than-forecast quarterly loss. UBS AG dropped the most in almost two years after saying it may fail to reach its profitability goal until at least 2016.
The STOXX Europe 600 Index advanced 0.4 percent to 321.50 this week, extending its rally so far this year to 15 percent. The gauge climbed to a five-year high of 322.37 on Thursday, capping its second consecutive month of gains.
“With Europe moving out of a recession we’re really in the moment of truth for earnings,” said Didier Duret, chief investment officer at ABN Amro Private Banking. “Inflation coming down substantially may trigger an ECB rate cut in the following meetings. This is also good for equities and is not yet fully priced into current expectations.”
The euro had its biggest weekly loss since July last year after data this week showed euro-area inflation unexpectedly slowed and the jobless rate climbed to a record.
“Any weakening of the euro will add momentum to European earnings,” Duret said. “The risks are now more on the upside.”
Inflation in the region fell to 0.7 percent last month, the lowest annual rate since November 2009 and below the ECB’s target of 2 percent.
Economists at Royal Bank of Scotland Group PLC, UBS and Bank of America Corp’s Merrill Lynch unit project the central bank will cut its benchmark interest rate to 0.25 percent after its policy meeting next week. Still, 65 of 68 economists predict no change from 0.5 percent, estimates compiled by Bloomberg News show.
In the US, the Federal Open Market Committee maintained its monthly bond purchases at US$85 billion this week and said that while it sees signs of strength in the economy, it will wait for more evidence of sustained improvement before slowing stimulus.
US reports showed industrial production unexpectedly increased in September, while business activity expanded last month at the fastest pace since March 2011.
National benchmark indices rose in 14 of the 18 Western European markets this week. The UK’s FTSE 100 advanced 0.2 percent, while Germany’s DAX added 0.3 percent and France’s CAC 40 gained less than 0.1 percent.