European shares rise as investors hope for more stimulus

European shares rose on Wednesday as investors hoped the European Central Bank and euro zone governments would green light stimulus measures after the U.S. Federal Reserve cut interest rates in an emergency move.

The Fed’s 50 basis points cut on Tuesday caught Wall Street off guard as it magnified the economic impact of the coronavirus and prompted questions over the efficacy of monetary easing.

However, traders now see a 90% chance the ECB will cut rates next week too, though a central bank policymaker Francois Villeroy de Galhau on Tuesday called on governments for more fiscal help.

The pan-European STOXX 600 index rose 1.22%, with growth-sensitive miners including Rio Tinto and Arcelormittal extending their rebound from sharp falls last week.

“Wall Street’s move yesterday was quite unrealistic,” said Will James, deputy head of European equities in Aberdeen Standard Investments.

“It’s quite clear that central banks are keen to try and arrest any decline they see, and that makes the likelihood of fiscal loosening in certain areas higher.”

Healthcare stocks .SXDP jumped, with Roche Holding AG gaining 1.7% after Chinese health authorities said it would use the Swiss pharma giant’s arthritis drug to treat some coronavirus patients in severe conditions.

Dialog Semiconductor jumped 4.3% after it predicted the chip supply chain and contract manufacturers to return to normal in the second quarter after disruption caused by the epidemic.

Travel and leisure index .SXTP posted small gains as hotel and airline stocks continued to decline on concerns over demand.

All the main regional indexes rose more than 1%. Italian shares rose even as health authorities said they may set up a new quarantine red zone to try to contain the outbreak in Europe’s worst-hit country.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, February March 2, 2020. REUTERS/Staff

Investors also shrugged off the final reading on euro zone business activity for February that painted a gloomier outlook amid supply chain disruptions due to the outbreak.

Shares in Metro fell 3.3% after Reuters reported U.S. food distributor has contacted the German wholesaler about a potential takeover.