By Barbara Kollmeyer, MarketWatch
European stock markets rose strongly, before giving up gains after news that Senate members and lawmakers from the White House administration reached agreement over a $2 trillion stimulus package to shore up the economy against coronavirus.
The Stoxx Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP -0.77% pared a 4.2% gain to 0.2%, with the index at 304.55, but still poised for its second consecutive positive day. Tuesday’s 8.4% surge, which marked the biggest one-day percentage gain since November 2008. A roller-coaster ride for investors this week — Europe stocks fell 4.3% on Monday — has been driven by the U.S.’s struggle to pass much-needed legislation to protect workers and the economy from the virus outbreak.
After marathon talks into the early hours of Wednesday, the Senate and the White House reached agreement over a $2 trillion stimulus package to shore up the economy against coronavirus. The Senate reconvenes at noon and is expected to easily pass the legislation, which will then go to the House of Representatives.
The Dow /zigman2/quotes/210598065/realtime DJIA -1.17% posted its best one-day gain on Tuesday since 1933 on optimism U.S. lawmakers would reach a deal. But Dow Jones Industrial Average futures /zigman2/quotes/210407078/delayed YM00 -1.24% also stepped back from strong gains earlier on Wednesday, last down 100 points to 20,51.
“The only worry is, if the measures announced in the last few days — that is, the Fed’s unlimited QE and this $2 trillion plan — don’t create a sustained rebound, it is unclear what will,” said Connor Campbell, financial analyst at Spreadex.
“There are always the plans the G-7 hinted at on Tuesday, though given the level of international cooperation required for that, who knows when they will materialize,” said Campbell, in a note to clients.
Elsewhere, the German DAX index /zigman2/quotes/210597999/delayed DX:DAX -0.04% erased a 4.2% gain to drop 1.7%, the FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX -1.73% peeled a 4.8% gain down to 1.2% and the FTSE MIB Italy Index /zigman2/quotes/210598024/delayed IT:I945 -1.98% surrendered all of a 5% gain, leaving it flat.
“I just think these markets got a bit overexcited yesterday,” Craig Erlam, senior market analyst, U.K. & EMEA at OANDA told MarketWatch in an interview.
“Obviously, a $2 trillion stimulus plan is huge. I feel like all of these stimulus measures, monetary and fiscal could turbo charge a recovery when it happens, but I think any sustainable recovery in markets will be hard pushed when we’re still seeing increasing lockdowns, increasing numbers of cases and deaths at a faster rate,” he said.
There are now 425,493 cases of COVID-19 and at least 18,963 people have died, according to data from the Johns Hopkins Whiting School of Engineering’s Centers for Systems Science and Engineering on Wednesday. Newly detected cases in the U.S. have soared past Iran, Germany, and Spain, with 55,225 cases and 802 deaths, and those are concentrated in New York.
European cases are also still climbing, with Spain reporting its worst day since the outbreak began, with more than 700 deaths. Italy’s death toll shot back up on Tuesday after two straight days of declines. The rate of infections, however, appears to have stabilized in that country, which is being viewed as a positive development.
There were sharp gains across the board for a range of sectors, with a 5% jump for major oil company BP /zigman2/quotes/207305210/composite BP -4.49% /zigman2/quotes/202286639/delayed UK:BP -4.43% even as U.S. /zigman2/quotes/211629951/delayed CL.1 -2.84% and Brent prices /zigman2/quotes/211756000/delayed UK:BRN.1 -1.99% pared gains. Banks also rose, with Lloyds Banking Group /zigman2/quotes/202285510/delayed UK:LLOY -3.21% up more than 6%.
Shares of Credit Suisse /zigman2/quotes/202835784/composite CS -2.28% /zigman2/quotes/205269278/delayed CH:CSGN -1.81% rose 3%. The Swiss bank said on Wednesday that its profitability has maintained a strong improvement trend so far in the first quarter of 2020, despite the coronavirus pandemic, but that it will likely hit results for the year.
Airlines were gaining even with most flights in Europe grounded. EasyJet /zigman2/quotes/202825892/delayed UK:EZJ -0.61% shares rose 10%, alongside International Consolidated Airlines Group /zigman2/quotes/208070069/delayed UK:IAG -2.17% . Analysts at Davy Research said “most of the leading airlines’ equity will not be permanently impaired, notably those with asset backing, and there will be opportunities at the end of this.”
They said Ryanair and IAG look to be the most secure and reiterated outperform on the two companies. As well, they said even with support by European governments, the region will probably “follow the U.S. model of consolidation.” Ryanair /zigman2/quotes/205429530/delayed IE:RY4C -1.74% shares rose 1.8%.