The S&P 500 extended its gains last week following a flurry of positive fourth quarter earnings reports and early signs that Europe’s economy may be on the mend. About one-third of firms comprising the S&P 500 index have announced results this month and among these over three-fourths have reported earnings that topped analysts’ projections, according to a Bloomberg survey. Yet the big economic news came out of Europe, which is muddling through a recession and sovereign debt crisis that’s weighing on global growth. German stocks reached their highest level in five years on news its economy—the largest in Europe—may be turning a corner. German business confidence has risen for three consecutive quarters, according to the Ifo Institute’s widely-cited Business Climate Index, which surveys about 7,000 executives. The index rose to 104.2 in January, ticking up from 102.4 in December and exceeded the 103 forecasted by economists in a Bloomberg poll. Meanwhile, the troubled Euro currency also strengthened on news that the region’s debt crisis may be fading, as evidenced by several European banks’ willingness to begin repaying some 1 trillion euros worth of 3-year emergency loans extended in 2011 and 2012. This week, banks will have the first opportunity to repay these loans. So far, nearly half of the banks that took advantage of the loans have committed to pay back some 140 billion euros, which far exceeds the 84 billion euros anticipated in a Bloomberg survey. Finally, the Spanish treasury saw exceptional demand for its 10-year treasury offering, the first of its kind since 2011. This signals that investors are more optimistic about the country’s economic prospects, despite the severe recession and significant issues plaguing its banks. Commenting on the offering, the Spanish Finance Minister said “never in the history of the Spanish treasury has there been this much demand for a syndicated bond.” While the offering raised just 7 billion euros or 5% of the 120 billion euros the treasury plans to issue in 2013, the oversubscribed demand should bode well for future offerings, in our view. Summing up, we’re still a long way from claiming an outright “recovery” in Europe, but last week’s news is clearly encouraging.
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