MARKET COMMENT: Europe Stocks Inch Up on Central Bank Hopes
First Published Wednesday, 20th June 2012 05:04 pm - © 2012 Dow Jones
By Sara Sjolin
LONDON--Central banks claimed center stage Wednesday, with a more positive stance toward easing from the Bank of England helping markets shake early-session losses, while investors looked ahead to the U.S. Federal Reserve's policy announcement.
Pressure also eased on Spanish yields, which traded at levels not seen in a week.
The Stoxx Europe 600 index closed 0.6% higher at 249.67, after rallying 1.6% on Tuesday. U.S. stocks were slightly lower on Wall Street.
Swedish fashion retailer Hennes & Mauritz AB helped lift Europe, rising 4.8% after second-quarter earnings beat analysts' expectations. H&M's net profit rose to 5.22 billion Swedish kronor ($748.5 million) in the three months to May 31, from 4.26 billion kronor a year earlier.
Elsewhere, banks were on the rise ahead of the latest policy announcement from the U.S. Federal Reserve.
Markets were increasingly expecting further easing from the U.S. central bank amid slower economic growth, either through so-called Operation Twist or possibly another round of quantitative easing. Under Operation Twist, the Fed sells short-term securities and uses proceeds to buy longer-term securities. The current program expires at the end of June.
While Federal Reserve Chairman Ben Bernanke "would probably favor a full-scale round of unsterilized 'QE,' several other members in the committee are reluctant to add liquidity to the financial system," analysts at Danske Bank said in a note.
"We expect the compromise to be an extension of the current Operation Twist program combined with some sort of verbal easing, most likely by moving the guidance on exceptionally low rates from 'through late 2014' to 'into 2015,'" they said.
In London, HSBC Holdings PLC rose 0.9%, Standard Chartered PLC took on 1.6%, and Lloyds Banking Group PLC added 1%.
Miners were also higher in the U.K. Vedanta Resources PLC rose 1.2%, Antofagasta PLC advanced 2.4% and Rio Tinto PLC moved 1.4% higher.
The gains intensified as the Bank of England released minutes from the latest Monetary Policy Committee gathering, showing more members were leaning toward an expansion of the 325 billion pound ($511 billion) asset-purchase program amid deteriorating market conditions. Four members voted for an increase, up from just one at the meeting in May.
"As far as we know, it looks like there will be more quantitative easing on the table, and that has been taken positively by the markets," said Richard Hunter, head of U.K. equities at Hargreaves Lansdown.
Such a stance toward easing measures might not necessarily inspire the U.S. Fed to do the same, he said, as the only thing that has changed since the last policy meeting is a deterioration in Europe.
"It doesn't seem to be necessary from a U.S. view, but the market has started to price in pleasant surprises," Mr. Hunter said. "If nothing comes along, it would give disappointment, and certainly after the strength of the U.S. and U.K. markets yesterday."
Meanwhile, employment in the U.K. hit its highest level in three years in April.
Across the Irish Sea, acquisitions in the airline industry got attention. After the market close on Tuesday, Ryanair Holdings PLC, up 0.8%, said it'll offer EUR1.30 a share for the remaining shares it doesn't already own in Irish Aer Lingus Group PLC. Shares of Aer Lingus surged 15.4% to EUR1.09.
Banks were also among the top advancers in Spain's IBEX 35 index, which rose 1.5% to 6,796.10. Bankia SA jumped 4%, Banco Popular Espanol SA gained 5.1% and BBVA SA rose 3.4%.
Pressure further eased on Spanish government bonds, with yields on 10-year bonds falling 27 basis points to 6.70%, according to electronic trading platform Tradeweb. A basis point is 1/100 of a percentage point.
In Italy, yields on 10-year government bonds came off 14 basis points to 5.76%, according to Tradeweb.
The FTSE MIB index rallied 2.1% to 13,732.16, as Banca Monte dei Paschi di Siena SpA rose 5.9% and Banca Popolare dell'Emilia Romagna Scarl added 6.4%.
In France, Credit Agricole SA ticked 3.7% higher and Societe Generale SA gained 2.9%, helping lift the CAC 40 index 0.3% to 3,126.52.
Pressured remained on Danone SA, off 1.6%, after the food producer on Tuesday cut its 2012 target because sluggish demand in Europe.
The German DAX 30 index rose 0.5% to 6,392.13, buoyed by the index's utility firms. RWE AG added 3.4% after Nomura lifted the stock to neutral from reduce, while E.ON AG was boosted 2.3% as it was raised to buy from neutral, also at Nomura.
In Greece, New Democracy leader Antonis Samaras was sworn in as the nation's new prime minister.
The Athens General Index rose 0.5% to 603.04.
Write to Sara Sjolin at AskNewswires@dowjones.com