Sun, Dec 22, 2013 - Page 15 News List

EU shares climb after Fed taper emboldens investors

Bloomberg

European stocks posted their biggest weekly rally since April as the US Federal Reserve’s decision to reduce its monthly bond purchases increased investors’ confidence in the strength of the recovery of the world’s No. 1 economy.

Cable & Wireless Communications PLC surged 16 percent after UK newspapers named it as a potential acquisition target, while Carnival PLC jumped 10 percent after the world’s largest cruise ship operator posted quarterly sales that beat estimates. On the other end, CGG SA slumped 15 percent after the world’s biggest seismic surveyor of oilfields cut its earnings forecast for this year.

The STOXX Europe 600 Index rose 3.7 percent to 321.14 this past week, trimming its decline from the beginning of the month to 1.2 percent.

The equity benchmark has gained 15 percent this year and is on course for its best annual performance since 2009, as central bankers around the world pledged to leave interest rates near record lows for a prolonged period.

“People who were uncertain about European equities hesitated because of tapering and there has just been relief since the announcement,” said Steven Bell, a London-based fund manager at F&C Asset Management PLC. “This year has been about fears not being realized. The tapering talks earlier in the year caused a major wobble, but now people have gotten used to it. It’s another year the European economy hasn’t fallen apart.”

National benchmark indices rose in every western European market except Greece and Iceland this week. The UK’s FTSE 100 Index advanced 2.6 percent, France’s CAC 40 gained 3.3 percent and Germany’s DAX jumped 4.4 percent.

“When financial markets see a relatively healthy economy, they would like to have some of the emergency life support removed,” Toby Nangle, head of multi-asset allocation at Threadneedle Asset Management Ltd in London, said by telephone.

Also this week, an EU report showed that eurozone factory output grew at a faster pace this month than economists had forecast.

Markit Economics’ Purchasing Managers’ Index also beat estimates by climbing to 52.7, as did a measure of manufacturing in Germany, the continent’s largest economy, which rose to 54.2 this month. Readings above 50 mean that activity increased.

The biggest news of the week was the EU’s finance ministers reaching an agreement late on Wednesday on how to deal with cross-border banks that fail. The meeting pledged to set up a 55 billion euro (US$75 billion) industry-financed fund for the next decade.

The ministers also agreed to establish an agency to make decisions on handling failing banks and when to share costs.

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