Europe Stocks Jump as Fed Signals Support Amid Economic Recovery

Jun 19, 2014 12:08 pm ET

June 19 (Bloomberg) -- European stocks rose the most in more than a week after the Federal Reserve repeated its pledge to leave interest rates near their record low and said the world’s largest economy should experience sustained growth.

Rolls-Royce Holdings Plc jumped 8.1 percent after saying it will buy back 1 billion pounds ($1.7 billion) of its own shares. Man Group Plc rallied 6 percent after agreeing to buy Numeric Holdings LLC. Electricite de France SA sank 7.7 percent after the French energy minister said tariffs won’t rise in August. Mediaset Espana Comunicacion SA slipped 3.2 percent after Chile eliminated Spain from the World Cup.

The Stoxx Europe 600 Index climbed 0.6 percent to 348.15 at the close of trading. Markets rallied around the world after the Fed also lowered its long-term forecast for interest rates to 3.75 percent from 4 percent in March. Austria’s stock market was closed today for the Corpus Christi holiday.

“The Fed has removed one more potential obstacle for a continued cyclical bull market,” said Thomas Thygesen, head of cross-asset strategy at Skandinaviska Enskilda Banken AB, in Copenhagen. “Having the Fed say that the long-term rate could be lower even if long-term growth isn’t is a bullish gesture for both stocks and bonds. That’s a big change from March and it means the Fed is willing to try harder to achieve its growth and inflation objectives. Yellen will remain market friendly even after the immediate crisis is gone.”

Growth Forecasts

Policy makers projected long-term growth for the U.S. economy of 2.1 percent to 2.3 percent, compared with 2.2 percent to 2.3 percent three months ago. Fed Chair Janet Yellen told reporters at the end of a two-day meeting in Washington yesterday that accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above average growth in the U.S.

The Fed reduced its bond purchases by $10 billion for a fifth consecutive meeting, to $35 billion, leaving it on track to end the program this year.

“The committee will likely reduce the pace of asset purchases in further measured steps at future meetings,” policy makers said in a statement, adding that rates will stay low after bond buying ends. They predicted that their benchmark interest rate will reach 1.13 percent at the end of 2015 and 2.5 percent a year later. In March, they predicted 1 percent at the end of next year and 2.25 percent 12 months later.

Unemployment Benefits

A Labor Department report today showed fewer Americans applied for unemployment benefits last week. Applications fell to 312,000 from 318,000 in the preceding period. Economists surveyed by Bloomberg had predicted a drop to 313,000.

The VStoxx Index, which measures expected volatility on the Euro Stoxx 50 Index using options prices, slumped 8.4 percent to 12.71, its lowest close since November 2006. The gauge has dropped 26 percent so far in 2014.

National benchmark indexes rose in every western-European market that opened today except for Iceland. Germany’s DAX and France’s CAC 40 jumped 0.7 percent, while the U.K.’s FTSE 100 added 0.4 percent.

Rolls-Royce surged 8.1 percent to 1,092 pence after the world’s second-largest maker of commercial-aircraft engines said it will pay for the share buyback with the proceeds from selling its energy assets to Siemens AG.

Man Group jumped 6 percent to 105.1 pence after the world’s largest publicly traded hedge-fund manager agreed to buy the Boston-based equity manager for as much as $494 million.

CGG, Qiagen

CGG SA advanced 2.9 percent to 10.60 euros after saying that PanAmerican Geophysical bought one of its land-surveying systems for delivery in July.

Peugeot SA rallied 5.4 percent to 11.04 euros. Exane BNP Paribas cited Chief Financial Officer Jean-Baptiste de Chatillon as saying that growing volumes made the Chinese market a major contributor to profit and cash.

EDF plunged 7.7 percent to 24.60 euros, its largest decline in more than five years. French Energy Minister Segolene Royal told RMC radio that the government will cancel a 5 percent increase to electricity prices planned for Aug. 1.

Mediaset Espana fell 3.2 percent to 8.49 euros. The broadcaster held the rights to show 25 games from the World Cup, according to a statement on its website last year. Gol Television, which charges a subscription fee, also shows games from the football tournament. The world champions lost their second match yesterday, which stopped them from progressing to the knock-out stage.

Alstom SA lost 6 percent to 27.70 euros after General Electric Co. said it has agreed to sell its rail-signaling assets to the French company. GE wants to make its $17 billion offer from April 30 to acquire Alstom’s energy business more attractive to the French.