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EUROPE MARKETS: European Banks Rally, Leading Stocks To 1-month Closing High

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12/08/2017 | 06:09pm CEST

By Carla Mozee and Sara Sjolin, MarketWatch

U.K. and EU make breakthrough on Brexit divorce terms, clearing way to next stage of negotiations

European stocks rose Friday, scoring their highest close in a month, after the U.K. and the European Union came to terms on a Brexit divorce deal, opening the way to a key phase of talks.

Bank stocks were in rally mode after news of the Brexit breakthrough and after global financial officials finally signed a deal Thursday to harmonize banking rules.

How markets are moving: The Stoxx Europe 600 popped up 0.7% to close at 389.25, logging its highest close since Nov. 9, according to FactSet data.

For the week, the Stoxx 600 scored a 1.4% gain, following last week's fall of 0.7%.

In Frankfurt on Friday, the DAX 30 index jumped 0.8% to 13,153.70, and in Paris, the CAC 40 gained 0.3% to 5,399.09. Spain's IBEX 35 leapt 0.6% to 10,321.10.

The U.K.'s FTSE 100 ended up 1% at 7,393.96, propelled higher by a drop in the pound.

The euro traded at $1.1765 at the time of the European close, down from $1.1774 late Thursday in New York.

What's moving markets: The president of the European Commission, Jean-Claude Juncker, said early Friday that "sufficient progress" has been made on three key issues in Brexit negotiations to allow the talks to advance to the next phase.

"I believe we have now made the breakthrough we needed," Juncker said at a press conference in Brussels.

After a night of intense negotiating, British Prime Minister Theresa May managed to resolve the final issue -- the Irish border -- needed to satisfy the EU side.

The Brussels negotiating team is now recommending that EU leaders give the go-ahead for Brexit talks to move to the second stage, which will cover trade agreements and a potential transition period. The European Council meeting of EU leaders is scheduled for Dec. 14-15.

An EU official reportedly threw cold water on hopes of a quick deal on trade, saying it's not realistic to expect an agreement by March 2019, when the U.K. leaves the union.

The pound hit an intraday high of $1.3521 following news of the deal, but since slumped to $1.3366. That compares with $1.3475 late Thursday in New York. Against the euro, sterling fell to EUR1.1363 from EUR1.1445 on Thursday.

Analysts said the drop came not because traders were disappointed with the deal, but because a lot of the optimism had already been price in.

Stock movers: The Stoxx Europe 600 Bank Index surged 2.2%, marking its biggest leap since July.

On Thursday, international banking regulators agreed on the final Basel III standards for banks. The harmonized rules, conceived after the financial crisis, aim to shield taxpayers from bank bailouts by making sure lenders have adequate cushion against shocks. The standards must now be passed into national laws. The agreement further highlighted that most lenders hold a sufficient amount of capital.

Friday's Brexit breakthrough also helps the financial industry, as it brightens the prospects for a smooth transition when the U.K. withdraws from the EU in 2019.

In the bank group, Germany's Deutsche Bank AG (>> Deutsche Bank) (>> Deutsche Bank) jumped 3.3%, while shares of London-based Barclays PLC (>> Barclays PLC)(>> Barclays PLC) rose 2.5%. France's Société Générale SA (>> Société Générale) added 2.3%, Spain's Banco Santander SA (>> Banco Santander, S.A.) picked up 1.8%, and Italy's Unione di Banche Italiane SpA (>> UBI Banca) moved up 2.2%.

What strategists are saying: "GBP/USD tumbled throughout the afternoon after the early morning buying frenzy fizzled. Sterling got off to a strong start in the early hour due to the news that the U.K. and EU will move onto next round of talks in relation to Brexit. Traders a feeling in was going to be good news that was reported this morning so some of the move was already priced in," said David Madden, market analyst at CMC Markets UK, in a note.

"The DAX has been given a boost after Martin Schulz of the Social Democrats suggested his party is warming up to the idea of entering into coalition talks with Angela Merkel's Christian Democratic Union. The German economy has been performing well without a functioning government, and [the] news has added to the positive sentiment," he added.

Stocks mentioned in the article
ChangeLast1st jan.
BRITISH POUND / US DOLLAR (GBP/USD) -0.07% 1.31064 Delayed Quote.-3.11%
CAC 40 -0.33% 5476.17 Real-time Quote.3.42%
DAX -0.64% 12350.82 Delayed Quote.-4.39%
FTSE 100 INDEX 0.28% 7234.11 End-of-day quote.-5.90%
IBEX 35 -0.81% 9512.8 End-of-day quote.-4.52%
STOXX EUROPE 600 -0.56% 382.14 Delayed Quote.-1.26%
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