By Tommy Stubbington
European stocks paused from a two-day rally Wednesday, as
investors continued to weigh weak economic data against hopes the
European Central Bank will introduce new stimulus measures.
The Stoxx Europe 600 index closed the session 0.1% higher on the
day, having climbed nearly 2% this week, after ECB President Mario
Draghi on Friday hinted at action to spur much-needed growth and
combat low inflation.
The euro zone has seen a marked deterioration of economic data
in recent weeks, with the region's growth stagnating in the second
quarter.
That trend continued Wednesday, as a survey showed German
consumer sentiment is expected to decline in September. The monthly
GfK survey showed consumer confidence falling to 8.6 in September
from 8.9 in August, against a forecast rise to 9.0.
"The ripple effect of Draghi's dovish comments last week has
been prolonged by less-than-encouraging macro data so far this
week," analysts at Crédit Agricole said.
Bets that the ECB may be edging closer to a large-scale asset
purchase program known as quantitative easing has also buoyed
euro-zone bonds.
German 10-year bond yields fell to a fresh all-time low of
0.91%. Yields in France, Italy, Spain and Portugal followed suit,
hitting record lows. Yields fall as prices rise.
"We have previously seen the market's probability of QE
implementation as oscillating in the 40-60% probability range.
Following Draghi's speech at Jackson Hole, in which he acknowledged
the decline in inflation expectations, this has firmly swung to the
higher end of the range," said interest-rate strategists at
Rabobank.
Investors also had one eye on geopolitics, as talks between
Russia and Ukraine failed to produce a breakthrough for ending the
conflict over eastern Ukraine, and Israel and Hamas agreed to an
open-ended cease-fire.
The backdrop from other regions was positive too, with U.S.
stocks edging up on Tuesday to push the S&P 500 above 2000
points at the close for the first time. In late European trade
Wednesday, the index was up a little less than 0.1%.
Activity in currency markets was muted, with the euro a touch
higher against the dollar at $1.3191, close to its recent 11-month
low.
In commodity markets, gold edged 0.2% lower to at $1,282.60 an
ounce, while Brent crude oil declined 0.3% to $102.20 a barrel.
Back in equities, shares in online retailer ASOS PLC soared to
close the session over 19% higher, driven by media reports that the
company has become a takeover target. Several news outlets reported
that its major Danish shareholder Bestseller had been approached by
a U.S. bidder for its stake in the company.
Shares in the online fashion retailer have more than halved in
value year-to-date. In June, ASOS said that a vast amount of its
stock had been destroyed in a warehouse fire, prompting it to go
offline for a weekend. ASOS wasn't immediately available to
comment.
Portugal Telecom SGPS SA, meanwhile, was the strongest stock on
the Stoxx Europe 600 index at the end of the session, rising more
than 6% on speculation of merger activity in the Brazilian
market.
One of Brazil's largest phone companies, Oi SA, which is in the
process of merging with Portugal Telecom, said on Wednesday that it
had hired an investment bank to examine the possibility of buying a
stake in a rival phone company, TIM Participacoes SA, which is
controlled by Telecom Italia SpA.
Write to Tommy Stubbington at tommy.stubbington@wsj.com and
Josie Cox at josie.cox@wsj.com