Commerzbank, Deutsche Bank lead European markets higher on merger talk

European markets were modestly higher Monday, with gains led by the banking sector after German lenders Deutsche Bank AG and Commerzbank AG announced Sunday that they had entered merger discussions. 

In the U.S., financial payments services provider FIS FIS, +1.02%  Worldpay Inc. WP, +1.22% in a cash and stock transaction valuing the latter at $43 billion. In 2018, the company formerly known as Vantiv assumed the Worldpay name when it acquired the smaller firm, which originated in the UK. 

A modest but broad-based rally in Asia carried over into the European session. The Stoxx Europe 600 SXXP, +0.14% rose 0.2% to 381.97, up from the close of 381.10 on Friday.

Germany’s DAX DAX, +0.96% was flat at 11,686.35, while France’s CAC 40 PX1, -0.01% gained 0.15% to 5,416.5.

The U.K.’s FTSE 100 UKX, +0.61% increased 0.7% to 7,278.78, after a gain last week of 1.8%.

An Italian index was also rising strongly, with the FTSE Italia All-Share index ITLMS, +0.81% up 0.7% to 23,253. 

The pound GBPUSD, -0.1806% fell 0.4% to $1.3254 from $1.3242 late Friday as Prime Minister Theresa May prepared to enter talks with Northern Ireland’s Democratic Unionist Party in a last-ditch bid to save her Brexit deal. The euro EURUSD, +0.2472% was up 0.2% to $1.1348 after ending Friday at $1.1307.

After a weekend light on geopolitical news, markets seemed to be taking stock ahead of the U.S. Federal Reserve’s open market committee minutes due Wednesday, when investors will be looking for signs of further tightening of monetary policy.

Concerns over the state of China-U.S. trade talks seemingly had little impact, as did the threat of a third vote in the U.K. Parliament on May’s Brexit deal, which Chancellor Phillip Hammond said was unlikely to happen unless the government thought they could win.

Deutsche BankDBK, +4.51%DB, -0.34% and Commerzbank CBK, +7.65%  led broad gains for European financials. Deutsche Bank was up 3.8% from Friday’s close, while Commerzbank climbed 5.8% from before the weekend.

The banks said on Sunday that they had decided to open talks on a possible merger, following months of speculation about such a combination. Neil Wilson, chief market analyst, told clients in a note that it there’s a risk of “creating an even larger bank, but just as a weak bank.

“Job cuts will be essential, and the unions will be all over it. No one really wants this but it’s probably essential,” said Wilson. “This has been talked about a long time and there have been talks before, but this looks like the only answer for Deutsche Bank as it struggles to return to profitability.“

Mining giant Rio Tinto Plc RIO, -0.04%RIO, +1.83% rose 2.5% after a price target increase by Citi analysts.EURUSD, +0.2472%

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