Italy leads European share bounce, with Fiat-Renault talks on tap

European stock markets ended at a two-week high on Wednesday, led by a rebound in Italian shares. Investors looked to more signs of stimulus from central bankers to allay fears of global economic slowdown.

The pan-European STOXX 600 Index ended 1.2 percent higher with Italy‘s blue-chip index rising 1.8 percent, bouncing back from a political crisis-driven selloff.

The resignation of Italian Prime Minister Giuseppe Conte on Tuesday made investors nervous about Rome’s continuing lack of political stability but also signalled that a new coalition arrangement may be in works.

Italy’s main opposition party, the Democratic Party (PD), said on Wednesday that it was ready to hold talks with the anti-establishment Five Star Movement over forming a government following the collapse of the populist coalition.

“The new majority would be considered a relatively more positive outcome for market sentiment, compared to snap elections,” said ING analysts in a note explaining why forming a new government would be preferable to holding a fresh national vote.

‘A changing environment’

On the corporate front, auto stocks got a boost from reported merger talks between Fiat Chrysler Automobiles NV – based in Amsterdam and London – and Renault SA, a car manufacturer in France.

Italian newspaper Il Sole 24 Ore reported that talks between the Italian-American and French carmakers may be back on the table.

A proposed multibillion-dollar merger that was set to create the world’s third-largest auto company collapsed in June.

The European auto sector has been hit by a global auto slowdown, with car sales plunging as the sector battles with the transition to electric and other alternative-fuel vehicles.

“This is a great example of two companies getting together,” said CMC Markets analyst David Madden, who added that “it’s a continuation of a consolidation in the sector to survive in a changing environment”.

Among individual stocks, Pandora A/S shares rallied for a second straight session, up 16 percent, with Wednesday’s move attributed by traders to a reported purchase of 24,400 shares by Chief Financial Officer Anders Boyer.

Interest-rate sensitive banks made the smallest gains with lender-heavy Madrid stocks lagging behind regional peers.

All eyes will be on the United States Federal Reserve‘s Jackson Hole symposium, which starts on Thursday and where investors hope central bankers – including Fed Chair Jerome Powell – will tread a dovish tone.

Signs that governments and central banks are ready to step in with additional measures to boost cooling global growth have helped stock markets survive a volatile few weeks.

However, Europe’s STOXX 600 is still on course to end August lower.