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European stocks rose on Wednesday, underpinned by expectations that the European Union will announce a massive stimulus program for the region’s recovery efforts, though investors were keeping an eye on simmering China-U.S. tensions.
The Stoxx Europe 600 index SXXP, +0.67% rose 0.3% to 350.21, after a 1% gain Tuesday, with the German DAX DAX, +1.27% up 0.9% and the French CAC 40 PX1, +1.43% gaining 1%. The FTSE 100 index UKX, +1.23% climbed nearly 1% as well. The euro EURUSD, -0.40% was down across the board, off 0.1% to $1.0970 and the pound GBPUSD, -0.33% fell 0.2% to $1.2307.
The European Commission is due to present its proposal for a bailout package, potentially backing efforts by France and Germany for a 500 billion euro ($547 billion) fund to aid recovery efforts. The so-called Frugal Four — Austria, Sweden, Denmark and the Netherlands — are opposed to that idea, preferring a recovery fund of only loans.
“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 by 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Lagarde said on a question and answer session on Wednesday that the bank’s mild pandemic pullback scenario could be out of date and it would be difficult to forecast how badly the economy will be affected.
Dow Jones Industrial Average futures YM00, +1.07% gained over 200 points, setting up Wall Street set for a second day of strong gains. Those have largely been driven by hopes the global economy has moved past the worst of the pandemic fallout.
But China and U.S. tensions lingered, 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.
Among stocks on the move, airline and travel shares extended Tuesday’s gains, with TUI AG TUI, +19.26% 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.
International Consolidated Airlines Group SA IAG, +6.07% rose 5%.
Shares of Sika AG SIKA, -4.92% fell over 5% after French building-materials maker Cie. de Saint-Gobain SA SGO, +0.89% said it sold a near 11% stake worth 2.56 billion Swiss francs in the chemical maker.
