European stocks surge on expectation of EU recovery package

Euro zone stocks surged on Wednesday after a report the European Commission wants to mobilise a bigger-than-expected €750 billion for the post-coronavirus economic recovery.

The euro zone stock index touched a session high, with 1.3 per cent jump, while the pan-European Stoxx 600 rose 0.7 per cent. The Iseq had climbed 1 per cent by 12.45pm, while US equity futures also advanced ahead of the opening bell.

Banking-heavy bourses of Spain and Italy rallied 2.4 per cent and 1.4 per cent respectively after a senior EU official said the commission would propose that Italy and Spain get the lion’s share of the new recovery fund offering a mix of grants and loans.

Euro zone banks charged 5.5 per cent higher, with Spain’s Banco de Sabadell, French lenders BNP Paribas and Societe Generale jumping about 9 per cent. The Italian banking index gained 3.6 per cent.

“The size of the market reaction is relatively modest if you compare it to the plan itself, but that is because there were quite some expectations in the market,” said Elwin de Groot, head of macro strategy at Rabobank.

Aside from banks, other hard-hit sectors including travel and leisure and automakers rallied. The easing of lockdowns in many European countries and improving economic data have spurred buying in the growth-exposed cyclical sectors in recent weeks, putting European stocks on course for a modest 3.3 per cent gain in May.

Reopening momentum

“European investors are really focusing on the reopening and that’s gathering some momentum,” said Ian Williams, strategist at Peel Hunt.

“With the cyclicals, the most extreme risks seem to have been priced in and people are looking for some cheaper opportunities.”

The latest updates helped investors look past fresh protests in Hong Kong over new national security laws proposed by Beijing and US president Donald Trump’s warning of a strong response to China’s move by this week.

Automakers were boosted by an 16.5 per cent surge in French carmaker Renault after it and Nissan Motor announced steps in a wide-ranging revamp of their partnership to slash costs and survive. Chipmaker Infineon Technologies dipped 5.5 per cent after it raised about €1.06 billion euros by issuing new shares. – Reuters