Europe close: Stocks jump on China-US talks, rally in government bonds

Hopes that China and the US would be able to avoid an escalation in trade tensions saw stocks on the Continent rise at the start of he week.

Last Friday evening, the Journal had reported that Chinese and US negotiators were drawing-up a road-map aimed at resolving their difference on trade by the time of a planned summit between China's Xi Jinping and America's Donald Trump, in November.

A drop in government bond yields around the globe also helped to buoy share prices, even as the US yield curve continued to flatten.

By the end of trading, the benchmark Stoxx 600 was higher by 0.57% or 2.17 points to 383.23, alongside a 0.99% or 120.75 point jump for the German Dax to 12,331.30.

Basic Resources, Automobiles and Parts, and Pharmaceuticals fared best on the Stoxx 600 on Monday.

To take note of as well, by the close of trading the FTSE Mibtel had reversed course to trade up by 0.27% or 55.70 points to 20,470.97, helped by a rally in the country's longer-term debt as 10-year government bond yields fell by 11 basis points to 3.01%.

That was despite remarks from Italian cabinet undersecretary, Giancarlo Giorgetti, that he could not rule out a larger than previously expected budget deficit for 2019 following the collapse of the toll-road in Genoa during the previous week.

In the background, sovereign bond yields were lower around the world after the release of the latest US Commitment of Traders report, which revealed that speculative short positions on 10-year US Treasuries had hit record levels during the previous week.

Nevertheless, when it came to the risks around Italy's debt, analysts at UBS were arguing that, when looking out to the medium-term, they were likely over-priced, although they did see scope for substantial "noise" [on the budget front] heading into the fall.

"So far, however, policy statements do not confirm market fears for blown-out budget deficits," they said.

Euro/dollar meanwhile was up by 0.18% at 1.1460.

On the economic front, investors were digesting the result of the first bilateral meeting since 2013 between German Chancellor Angela Merkel and Russia's Vladimir Putin at the weekend, when the two leaders discussed the Nord Stream 2 pipeline and various other matters, including Syria.

The Financial Times noted talk about a possible four-way summit on Syria alongside France and Turkey, which it believed might indicate that Merkel was now more open to the idea of a post-war role for Syrian leader Bashar Al-Assad.

Monday also marked Greece's official exit from its three-year €61.9bn bail-out programme.

Regarding Turkey, investors did not react too negatively to rating agency Standard&Poor's decision, on Friday, to downgrade its rating on Turkey's long-term debt from 'BB-' to 'B+'.

The flow of economic news was otherwise light, with a reading on German producer prices for the month of July printing at up by 0.2% month-on-month and 3.0% on the year, according to the country's Ministry of Finance, exactly as expected by analysts.

Similarly, euro area construction output had edged up by 0.2% month-on-month in June, Eurostat reported.

In the corporate patch, shares of Italian infrastructure operator Atlantia skidded 8.71% lower to €17.69 after Italian PM Giuseppe Conte said the company's concession was already in the process of being revoked.

After the close of markets, S&P lowered its outlook on BBVA's long-term corporate debt from 'stable' to 'negative'.