German Stocks Rebound as Inflation Slows; Munich Re, Metro Gain

By Stefanie Haxel

Dec. 2 (Bloomberg) -- German stocks advanced after a report showed European producer prices dropped in October, fueling speculation policy makers will have more room to cut interest rates this week.

Munich Re gained the most in a week as JPMorgan Chase & Co. increased its share-price estimate for the world’s biggest reinsurer. Metro AG, Germany’s largest retailer, rose 3.2 percent after Tesco Plc of the U.K. reported sales growth that beat analysts’ estimates.

The benchmark DAX Index increased 103.91, or 2.4 percent, to 4,498.7 at 12:39 p.m. in Frankfurt after falling as much as 2.1 percent earlier. DAX futures expiring this month advanced 2.9 percent. The broader HDAX Index climbed 2.3 percent.

Slowing inflation “gives central banks more leeway and they will use it,” said Achim Matzke, an equity strategist at Commerzbank AG in Frankfurt. “However, the global economy is cooling. This development can’t be stopped immediately, you’ll need patience.”

Germany’s DAX Index has slumped 44 percent this year as almost $1 trillion in credit-related losses and writedowns at financial firms worldwide threaten to push the global economy into a recession.

Factory prices fell 0.8 percent from September, the biggest decline since October 1986, the European Union statistics office in Luxembourg said today. The drop was due to a slump in oil prices and reduced the annual producer-price inflation rate to 6.3 percent from 7.9 percent.

Nineteen of the 56 economists in the Bloomberg survey see the ECB cutting the benchmark interest rate by at least 75 basis points at its next meeting on Dec. 4. The median forecast is for a reduction to 2.75 percent from currently 3.25 percent.

‘Pricing Power’

Munich Re rallied 4.5 percent to 108.50 euros, the steepest increase since Nov. 24. JPMorgan raised its price projection 16 percent to 148 euros.

“Currently, it seems that the reinsurance sub-sector should continue to perform well because it is one of the only sectors in the whole stock market for which product demand is increasing and the main providers of the product have pricing power,” analysts including Michael Huttner wrote in a note to clients today.

Metro added 3.1 percent to 23.90 euros, snapping a two-day drop. Tesco’s third-quarter revenue climbed 2 percent at U.K. stores open at least a year excluding gasoline after the company introduced a cheaper product range to combat discounters. That exceeded the 1.6 percent median estimate of analysts surveyed by Bloomberg News.

Crude Oil

Crude oil retreated to the lowest in more than three years in New York on signs the U.S., the largest energy consumer, may be in the longest slump since World War II.

Volkswagen AG, Europe’s biggest carmaker, added 6.2 percent to 292.67 euros. Deutsche Lufthansa AG, the region’s second- largest airline, gained 3.3 percent to 10.15 euros.

The following stocks also rose or fell in German markets. Symbols are in parentheses.

Deutsche Boerse AG (DB1 GY) sank 5.3 percent to 50.20 euros. The operator of the Frankfurt bourse said German stock-exchange trades dropped 49 percent to 137.4 billion euros ($173.8 billion) last month from a year earlier.

Douglas Holding AG (DOU GY) slid for a third day, losing 1.6 percent to 31.69 euros, after Goldman Sachs Group Inc. added Europe’s biggest retailer of makeup and perfumes to its “conviction sell” list.

Q-Cells SE (QCE GY) climbed 12 percent to 23.91 euros, the steepest increase in a week. The solar-cell maker expects to reach sales goals next year even as the global economy falters, Financial Times Deutschland reported, citing an interview with Chief Executive Officer Charles Anton Milner.

To contact the reporter on this story: Stefanie Haxel in Frankfurt at shaxel@bloomberg.net.