European stocks closed at a nearly three-week high on Wednesday, boosted by a rally in the region’s bank shares a day after U.S. Federal Reserve Chairman-nominee Jerome Powell said he hopes to ease financial regulations.
The U.K. stock market, however, missed out on the European bounce as the pound rallied after signs of a breakthrough in Brexit negotiations between London and Brussels.
What are markets doing: The Stoxx Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP +0.65% climbed 0.3% to end at 388.04, scoring its highest close since Nov. 10, according to FactSet data.
France’s CAC 40 index /zigman2/quotes/210597958/delayed FR:PX1 +0.83% added 0.1% to finish at 5,398.05, while Germany’s DAX 30 index /zigman2/quotes/210597999/delayed DX:DAX +0.78% edged up less than 0.1% to 13,061.87.
The U.K.’s FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX +0.65% slid 0.9% to finish at 7,393.56, as the pound /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.4938% touched a two-month high and recently changed hands at $1.3434, up from $1.3339 late Tuesday in New York.
The euro /zigman2/quotes/210561242/realtime/sampled EURUSD -0.5420% rose to $1.1859 from $1.1842 on Tuesday.
What’s driving the markets: European bank shares /zigman2/quotes/210599339/delayed XX:SX7P +0.09% rallied 1.6%, tracking gains for their U.S. counterparts on Tuesday. The upbeat mood in the sector came after Powell said during a Senate confirmation hearing that he hopes to look for ways to ease what he views as excessive regulations for the financial industry.
Many European banks do business in the U.S., so looser regulations stateside could also be a boon for them.
Traders were also encouraged by progress on a Republican-backed tax overhaul in the U.S. after the Senate Budget Committee on Tuesday voted 12-11 to advance a bill. A full Senate vote could be possible as early as Thursday. U.S. stocks closed firmly higher on Tuesday, but futures were struggling for direction early Wednesday.
“Market volatility has taken a turn for the better, with yesterday’s news of a potential breakthroughs on both U.S. tax reforms and Brexit negotiations sparking global stocks into a renewed bullish phase,” said Joshua Mahony, market analyst at IG, in a note.
“With bitcoin hitting $10,000, and the Dow heading towards 24,000, there is a clear appetite for risk amongst the trading community of late, with December looking primed for another Santa rally,” he added.
Brexit breakthrough: In the U.K., all eyes were on developments in the Brexit talks after local media reports that the U.K. government has offered Brussels a larger potential exit payment of up to 50 billion euros ($59 billion).
Prime Minister Theresa May in September suggested Britain would pay only €20 billion, but the EU said the amount would have to be increased to be able to move the withdrawal talks on to deal with trade and a potential transition period.
The move from London is seen as potentially unlocking the negotiations deadlock ahead of an EU summit on Dec. 14-15.