European stocks rise as M&A cheer replaces political fears

European stocks popped higher Monday, as the choppy political waters in Spain and Italy calmed and as traders took heart from news of potential corporate mergers and acquisitions.

Shares of French bank Societe Generale SA and air carrier Air France-KLM were on the rise on reports of M&A deals in the cards.

How markets are performing

The Stoxx Europe 600 Index was up 0.4% at 388.11. All sectors were moving higher, led by the utility and financial groups. On Friday, the benchmark rose 1%, trimming the loss for the week to 1.1%.

Spain’s IBEX 35  was the best performer of the major bourses, up by 1.1% to 9,734.60, as a new government took over in Madrid.

Italy’s FTSE MIB index  was up 0.6% at 22,249.72, adding to a jump of 1.5% on Friday, when a populist coalition officially entered power.

Germany’s DAX 30 index  on Monday gained 0.5% to 12,784.65, and France’s CAC 40 index was up 0.4% to 5,484.57. In London, the FTSE 100  rose 0.6% to 7,747.52.

The euro  moved up to $1.1702 from $1.1659 late Friday in New York.

What’s driving markets

Deal talk swayed market action as the first full trading week in June got underway. Shares of Italian bank UniCredit SpA and French lender Societe Generale SA were on the move after a Financial Times report that the companies are in early-stage talks about a possible merger. UniCredit CEO Jean-Pierre Mustier, a former SocGen executive, has been working on the plan for months, the FT reported.

Calm was returning to markets in Italy, where a political crisis that rocked global markets was resolved on Friday with the swearing-in of a new government. Populist parties the 5 Star Movement and the League have formed a coalition administration.

In the fixed-income market, Italy’s 2-year bond yield  fell 30 basis points to 0.69% on Monday, according to Tradeweb. Last week, Italian bonds shot higher as investors ditched the country’s debt on the political uncertainty. Yields fall as bond prices rise.

Meanwhile, Spain also got a new government after a period of upheaval. Socialist Party leader Pedro Sánchez was sworn in as prime minister on Saturday after Mariano Rajoy was ousted in a parliamentary vote of no confidence. At the same time, Madrid ended direct rule in Catalonia, letting go of controls put in to resist a push for the region to self-govern.

Investors may turn their focus back to trade tensions, after weekend trade talks between the U.S. and China ended with little sign of progress. The world’s two largest economies moved closer to imposing tit-for-tat tariffs on one another.

In addition, six of the Group of Seven industrialized nations have issued a rare condemnation of the 7th member, the U.S., over its trade policy. President Donald Trump’s administration has implemented threatened steel and aluminum import levies on some of the U.S.’s biggest allies, including the European Union, Mexico and Canada.

Officials from the G-7 are scheduled to meet in Quebec later this week.

What strategists are saying

“Despite threats and recriminations from China and other global leaders, investors are actively choosing to ignore the trade tariff tensions, with global equity markets rising,” said Rebecca O’Keeffe, head of investment at Interactive Investors.

“The G7 meeting ... is now expected to be the main showdown for the issue, with investors hoping that the U.S. administration will backtrack on their current stance — but they might be disappointed,” she said.

Stock movers

Societe Generale  shares rose 1.7% after the Financial Times report of merger talks. UniCredit  shares were down 0.3%.

Off the Stoxx 600, Spain’s Papeles y Cartones de Europa SA  , known as Europac, rallied 9% after packaging producer DS Smith PLC’s deal to buy the company for about 1.67 billion euros ($1.95 billion). DS Smith shares  added 3.2%.

Air France-KLM  jumped 5.7% after AccorHotels said it’s considering purchasing a minority stake in the French-Dutch air carrier. Accor  shares were down 4%.