FTSE 100 gains as European political turmoils settles, M&A comes into focus

U.K. stocks pushed higher Monday, still finding relief after political strife in continental Europe settled and finding fresh upward momentum from merger and acquisition news.

How are markets performing

The FTSE 100 index climbed 0.8% to 7,763.12. All sectors rose, led by the utility and consumer services groups. On Friday, the benchmark picked up 0.3%, trimming last week’s loss to 0.4%.

The pound marched up to $1.3385 from $1.3350 late Friday in New York.

What’s driving markets

The FTSE 100 was on course for a second straight win as it continued to shake off worries about political instability in Italy and Spain that contributed to last week’s loss for London’s blue-chip benchmark. In Italy, a political crisis that rocked global markets was resolved Friday with the swearing-in of a new government. Populist parties the 5 Star Movement and the League have formed a coalition administration.

Spain also has 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.

Deal talk directed market action as the first full trading week in June started, with FTSE 100 constituent DS Smith PLC in a deal to buy a Spanish packaging company . The broader European equity market  also moved higher on M&A talk, with shares of Italian bank UniCredit SpA  rising after a Financial Times report said UniCredit and French lender Société Générale SA are in early-stage talks about a possible merger.

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 imposed steel and aluminum import levies on some of the U.S.’s biggest allies, including the European Union, Mexico and Canada. The G7 will begin a summit on Thursday in Quebec.

Stock movers

DS Smith PLC gained 3.1% after the packaging producer struck a deal to buy Spain’s Papeles y Cartones de Europa SA  , known as Europac, for about 1.67 billion euros ($1.95 billion).

On the FTSE 250, CYBG PLC  moved up 1.3% after the parent of lenders Clydesdale and Yorkshire Bank, raised by 7% its proposed all-share offer for Virgin Money Holdings PLC a bank backed by billionaire Richard Branson. Virgin shareholders would own around 38% of the company, up from around 36.5% under the old offer set forth in May. Virgin Money shares were up 0.2%.

Back on the FTSE 100, easyJet PLC  leapt 3.2%, with Deutsche Bank raising its price target on the airline to £19.15 from £15.60.

BT Group PLC  was up 1%. Some BT investors are questioning Chief Executive Gavin Patterson’s future at the telecommunications operator following the company’s biggest restructuring in a decade, five of the company’s top 20 shareholders told the Financial Times.

Economic data

U.K. construction activity remained subdued in May, said IHS Markit/CIPS whose purchasing managers’ index was unchanged in May at 52.5 from April. But the May reading was above the 51.7 print expected in FactSet consensus estimate.

What strategists are saying

“The pound is showing more strength at the start of the week boosted by the better than expected U.K. manufacturing PMI report on Friday ... and with the services data coming in tomorrow, analysts are looking for another positive reading,” said Konstantinos Anthis, head of research at ADS Securities, in a note.

“The British currency has seen strong losses in recent weeks and the correction under way was due for some time. Traders are positioning for a bullish services PMI report so we could see further gains with $1.34 being the next level to focus on.”