On Friday the mood is turned decidedly upbeat in the European market, with glimmers of hope for two sagas that have plagued European stocks this year — trade talks and Brexit.
As the week began, equities were coming off the worst slump since August, the trade dispute was heating up with the US blacklisting Chinese tech giants, and British Prime Minister Boris Johnson had deemed a Brexit agreement by the end of the month “essentially impossible.”
Fast forward to Friday, and equities are poised for their biggest weekly rally since mid-March.
The Stoxx Europe 600 Index jumped the most since January. It closed at 391.61 on Friday, an increase of 2.3 percent for the day and a 3 percent increase for the week.
The coming days will confirm whether investors’ optimism is warranted, and provide catalysts for further stock market moves.
“The slightest glimmer of hope literally gives the stock market wings and all worries and crises seem to have been forgotten,” said Andreas Lipkow, strategist at Comdirect Bank.
“It remains to be seen if the very high expectations can be met. As after any big party, the headache on the following morning can be equally painful,” Lipkow said.
The gains were even more pronounced for UK-domestic stocks, boosted by hopes the UK might reach a deal with the EU on Brexit.
The pound has been surging since Irish Prime Minister Leo Varadkar on Thursday said that he believed an agreement was possible by the Oct. 31 deadline, following two-and-a-half hours of “constructive” talks with Johnson.
On Friday, EU Chief Negotiator Michel Barnier recommended that detailed talks could begin in earnest.
The FTSE 250 was up 4.2 percent on Friday at 20,041.71 and 2.9 percent for the week, with Royal Bank of Scotland Group PLC jumping 16 percent and Marks & Spencer Group PLC climbing 11 percent.
The FTSE 100, home of multinationals such as BP PLC and GlaxoSmithKline PLC, was up 0.8 percent at 7,247.08, hurt by the rally in the pound. It posted a 1.3 percent increase for the week.
“What we see today is mostly short-covering in cyclical sectors and financials,” said Markus Steinbeis, managing director at asset manager Steinbeis & Haecker in Munich.
The rally could last for a little while, given the attractive valuations and the significant underweight in these value stocks among investors, Steinbeis added.
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