European Stocks rise as Fed Signals Support Amid Recovery
European stocks rose 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. U.S. stock futures were little changed, while Asian shares rallied.
Rolls-Royce Holdings Plc jumped 5.7 percent after saying it will buy back 1 billion pounds ($1.7 billion) of its own shares. Qiagen NV advanced 1.1 percent after saying U.S. regulators approved its kit to test for cytomegalovirus. Ryanair Holdings Plc (RYA) increased after UBS AG recommended buying the shares. A gauge of travel and leisure shares rebounded after yesterday dropping to its lowest level in almost a month.
The Stoxx Europe 600 Index climbed 0.7 percent to 348.55 at 9:04 a.m. in London. 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. Standard & Poor’s 500 Index futures lost less than 0.1 percent, while the MSCI Asia Pacific Index advanced 1.3 percent to a six-year high.
“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-trend 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 at 8:30 a.m. in Washington may show applications for unemployment benefits fell to 313,000 last week from 317,000 in the preceding period, according to the median economist estimate compiled by Bloomberg.
Rolls-Royce surged 5.7 percent to 1,068 pence after the world’s second-largest maker of commercial aircraft engines said it will pay for the share buyback with the proceeds from the sale of its energy assets to Siemens AG.
Qiagen advanced 1.1 percent to 17.82 euros. The U.S. Food and Drug Administration approved the company’s CMV testing kit to assess infections in organ-transplant patients, according to a statement late yesterday.
Ryanair, which slumped 9.7 percent since June 10 through yesterday, increased 0.8 percent to 6.93 euros in Dublin. UBS raised its rating on the low-cost carrier to buy from neutral, with analyst Jarrod Castle citing valuations and saying Ryanair’s new fleet and product innovation will help the company to continue to take market share from rivals. The stock traded at 14.6 times its projected earnings as of yesterday, down from a multiple of 21 times in March.
The Stoxx 600 Travel & Leisure Index rose 1.2 percent after closing at its lowest price since May 20 yesterday. The gauge has still lost 3.6 percent since June 10, which was its highest level since October 2007.
Source: bloomberg
