LONDON - European stocks, Italian bonds and the euro rallied on Monday on signs that Rome was preparing to rework the spending plans that have left it facing formal European Union disciplinary action.
A bounce in oil prices after their 'black' Friday, the survival chances of Britain's newly-sealed Brexit agreement and renewed Russia and Ukraine tensions were keeping traders busy too, but it was Italy that stole the show.
Deputy Prime Minister Matteo Salvini had hinted on Sunday at the possibility of tweaking the country's budget deficit goal, saying "no one is stuck" to the 2.4 percent target and the signs of a shift continued on Monday.
Italy's banks index duly leapt 5.3 percent which put it on track for its strongest day since June, while shorter-term Italian borrowing costs fell sharply in the bond markets to their lowest since September.
"It will help the banks if the BTP-Bund spread goes lower which it has been this morning," Pierre Bose, head of European strategy at Credit Suisse Wealth Management, said.
"You potentially move from a negative spiral to a more positive spiral where you end up with less pressure on the banks, more ability to lend and that will underpin growth in a better fashion."
The euro also climbed, rising 0.3 percent to $1.1376 and was up 0.7 percent at 128.90 yen, though it flinched briefly when Germany's monthly Ifo survey showed a larger-than-expected drop in business morale.
"The (Ifo) index's fall is somewhat alarming," Uwe Burkert of LBBW wrote in a note. "It was generally expected that the economic weakness of the third quarter would be corrected with a firmly positive growth figure in the fourth quarter."
There was also a rise for the pound against the dollar after the United Kingdom and European Union reached an agreement over the UK's Brexit plans on Sunday.
It dipped against the euro, though, and analysts remain cautious that the Brexit deal faces stiff opposition from within the UK parliament which will vote on the agreement in around two weeks' time.
UK Prime Minister Theresa May will hold an emergency cabinet meeting on Monday to brief ministers on her strategy to convince the deal's critics that include the Northern Irish DUP party currently propping up May's government.
"The failure of the pound to rally on recent positive developments suggest the market is pricing in that the deal won't pass the first time in parliament," said Lee Hardman, a currency analyst at MUFG.
"During the next two weeks the pound will likely trade with increased volatility," he added.
Wall Street stock futures firmed up after another negative session on Friday had seen the S&P 500 record its lowest close in six months, more than 10 percent down from September’s peaks, and pushed it back in 'correction' territory.
Heavy oil price losses that sent Brent crude plunging below $58 per barrel had dragged energy stocks lower. Brent, hit by growing signs of crude oversupply on world markets as demand ebbs, clawed back lost ground first thing on Monday but has been struggling to keep a foothold above $60.
Both U.S. WTI and Brent futures are down more than 20 percent this month, and unless they recover further this week the losses would mark their biggest fall since October, 2008.
Brent crude futures last stood at $60.15 per barrel, up 2.3 percent in London. U.S. crude futures last fetched $51.23 per barrel, up 1.6 percent on the day and off Friday's low of $50.15.
Overnight in Asia, MSCI's broadest index of the region's shares excluding Japan edged up 0.6 percent, led by gains in Hong Kong and Taiwan, while Japan's Nikkei advanced 0.8 percent.
In China, the Shanghai composite index eased 0.1 percent, though, and Bitcoin extended its recent run of falls, dropping more than five percent from the day's highs as selling in cryptocurrencies gathered broad momentum again.
Bitcoin was last trading at $3,880 -- holding above the 2018 lows it hit last week but it has lost around three quarters of its value this year.
Gold, meanwhile, rose as fears of a slowdown in global economic growth and uncertainty surrounding the U.S. interest rate trajectory and U.S. China trade tensions bolstered the metal's appeal ahead of a G20 meeting at the end of the week.