European stocks climb as investors eye bigger-than-expected EU stimulus plan

European stocks climbed on Wednesday, amid reports the European Union will announce a bigger-than-expected €750 billion stimulus program for the region’s recovery efforts, and as investors continued to ride optimism over global recoveries.

Extending gains, the Stoxx Europe 600 index SXXP, +0.91% rose 0.7% to 351.48, after a 1% gain Tuesday, with the German DAX DAX, +0.71% nearly 2% and the French CAC 40 PX1, +0.88% gaining 1.9%. The FTSE 100 index UKX, +0.64% climbed 1.4% as well.

The euro EURUSD, -0.04% reversed earlier losses after news the European Commission will propose a €750 billion ($825 billion) recovery fund to help the bloc’s economy get through a deep recession caused by the coronavirus pandemic.

France and Germany had been hoping for a package of around €500 billion. The so-called Frugal Four — Austria, Sweden, Denmark and the Netherlands — are opposed to that idea, preferring a recovery fund of only loans.

Italian bonds rallied on the news, with the yield on the 10-year note TMBMKIT-10Y, 1.521% dropping 4 basis points to 1.52%. 

“It will open a long and intense period of negotiations between member states regarding the financial instrument that could be used (loans or grants) to help countries in need,” said Christopher Dembik, head of macro analysis at Saxo Bank, in a note to clients. “A final agreement is expected at the next EU Council meeting in June. In the interim, Europe is once again wasting precious time needed to fight the crisis.”

European Central Bank President Christine Lagarde warned on Wednesday said the eurozone economy will likely shrink by between 8% and 12% this year, a deeper downturn than previously expected.

Wall Street was set to charge higher again, with Dow Jones Industrial Average futures YM00, +0.65% climbing over 300 points. Tuesday was also a bullish session for Wall Street, largely been driven by hopes the global economy has moved past the worst of the pandemic fallout.

Investors appeared ready to brush off China and U.S. tensions, with Washington considering a range of sanctions to punish Beijing for its crackdown on Hong Kong, Bloomberg News reported, citing people familiar with the matter.

Police used pepper spray against thousands of demonstrators in Hong Kong, who were protesting China’s planned security law and a separate bill that would make it a crime to mock China’s national anthem.

Banking stocks rallied in Europe as news of the EU package reached markets, with Spain’s Banco Santander SAN, +0.34% SAN, +6.72% rising 5.6% and Italy’s UniCredit UCG, +1.76%. Those countries are expected to especially struggle to recover from the pandemic, given the big role tourism plays in the economy.

Among stocks on the move, airline and travel shares extended Tuesday’s gains, with TUI TUI, +0.94% soaring 27% after Monday’s 30% gain. Spain’s move to reopen to foreign tourists by July 1 is big for the travel operator, which is fighting to survive without cash coming in.

As of May 10, its cash and available facilities amounted to €2.1 billion, which analysts at Morgan Stanley say isn’t enough to deal with a prolonged period of minimal revenue with monthly cash burn of around €600 million.

Shares of easyJet EZJ, +5.92% surged 9%, alongside Deutsche Lufthansa LHA, +4.92%. International Consolidated Airlines Group IAG, +2.69% rose 5%.

In an interview on Wednesday, Ryanair RY4C, +2.69% Chief Executive Michael O’Leary said his airline had seen a “big surge” in holiday bookings from the U.K. Germany is also expected to announce it is easing travel measures on Wednesday. Ryanair shares rose 2.4%.

Shares of Renault RNO, +1.11% jumped 17% after the French government said on Tuesday that it will spend billions to help the automobile industry. Much of that aid — a state-backed credit facility of €5 billion ($5.49 billion) — will go to Renault, The Wall Street Journal reported.

Meanwhile, Nissan Motor Co. 7201, +8.15%, Renault and Mitsubishi Motors Corp. 7211, +6.36% on Wednesday unveiled a new cost-cutting alliance strategy.

Shares of Sika SIKA, +0.96% fell over 5% after French building-materials maker Cie. de Saint-Gobain SGO, +1.23% said it sold a near 11% stake worth 2.56 billion Swiss francs in the chemical maker.