European stocks rebound after North Koreas response to canceled summit

European stocks rebounded after two straight sessions of losses on Friday after measured comments from North Korea calmed nerves about a geopolitical crisis.

Better-than-expected sentiment data from German also helped boost markets on the last trading day of the week.

What are markets doing?

The Stoxx Europe 600 Index
SXXP, +0.28%
climbed 0.3% to 391.69, paring its weekly loss to 0.8%. A decline this week would break the benchmarks eight-week winning run, which marked its longest win streak since June 2014.

The U.K.s FTSE 100 index
UKX, +0.15%
gained 0.2% to 7,732.57, buoyed by a weaker pound. Sterling
GBPUSD, -0.3289%
fell to $1.3335 from $1.3379 late Thursday in New York. U.K. markets are closed on Monday for a local holiday.

Germanys DAX 30 index
DAX, +0.82%
rallied 1% to 12,979.21, while Frances CAC 40
PX1, +0.36%
added 0.4% to 5,572.56.

Italys FTSE MIB index
I945, -0.92%
lost 0.7% to 22,607.66 and headed for a 3.6% loss for the week. The index has been on a roller coaster rise this week after the populist coalition of the 5 Star Movement and League on Monday presented their prime minister candidate to President Sergio Mattarella.

Spanish stocks were under pressure, with the IBEX 35 index
IBEX, -2.34%
down 1.6% on reports the opposition Socialist party called for a vote of no confidence on Prime Minister Mariano Rajoy.

The euro
EURUSD, -0.4010%
traded at $1.1699, compared with $1.1722 late Thursday.

What is driving markets?

After tumbling on Thursday in the wake of Trumps decision to cancel a historic meeting with North Korea, the market appeared to shake off the angst over tensions on the Korean Peninsula. Traders found some reassurance in the measured response from Pyongyang where a senior official said its leader Kim Jong Un is still willing to meet.

We express our willingness to sit down face-to-face with the U.S. and resolve issues anytime and in any format, said Kim Kye Gwan, a senior North Korea foreign ministry official, in a statement published by the Norths official state media.

Closer to home, traders were also encouraged by data showing the recent slide in German business sentiment coming to a halt in May. The Ifo business climate index came in at 102.2 in May, unchanged from April and above economists forecasts of 101.9 points.

What are strategists saying?

How times can change. After weeks and months of disappointing data, not only from Germany but the entire eurozone, an unchanged Ifo index is already good news. After five consecutive drops, Germanys most prominent leading indicator, the Ifo index, remained unchanged in May, after an upward revision of the April data, keeping the hopes of an economic rebound alive, said Carsten Brzeski, chief economist for Germany at ING, in a note.

Whats going on in Southern Europe?

Stocks tumbled in Spain after the socialists cast a vote of no confidence on Prime Minister Rajoy over a corruption case that ended in convictions for a former party treasurer and other senior members of the party.

The credibility of Rajoy, who already has a shaky hold on power, was questioned by the judge who handed down the ruling on Thursday, according to Reuters. It isnt clear if the opposition socialists can get enough votes to loosen his grip on power.

The yield on 10-year Spanish government bonds
TMBMKES-10Y, +6.33%
jumped 11 basis points to 1.499%, according to Tradeweb.

Traders were watching who will get the top jobs in Italys new coalition after President Mattarella late Wednesday gave little known law professor Giuseppe Conte a formal mandate to form a government. Conte is expected to present his cabinet picks on Friday and then Mattarella and both houses of parliament need to approve his choices.

If that happens, Italy will become the largest country in Europe to be run by an antiestablishment government, which has already put itself on collision course with Brussels. The two parties have vowed to challenge the EUs budget rules and slash taxes while increasing fiscal spending.

Italian government yields jumped to a more-than one-year high earlier this week and pulled back a little on Thursday. The yield on 10-year paper
TMBMKIT-10Y, +3.30%
rose 8 basis points to 2.470% on Friday.

Stock movers

Share of Centamin PLC
CEY, -16.76%
posted the biggest slide in Europe, falling 16% after the miner cut its 2018 production guidance at the Sukari gold mine in Egypt by 11%-13%.

Italian banks were also lower, with shares of Banco BPM SpA
BAMI, -5.25%
down 5.1% and Intesa Sanpaolo SpA
ISP, -2.97%
2.6% lower.

Royal Mail PLC
RMG, -2.42%
dropped 2.5% after Berenberg cut the delivery company to sell from hold, according to Dow Jones Newswires. Berenberg said Royal Mail faces little profit growth in coming years, as its customers are likely to scale back on sending out marketing materials due to the EUs new General Data Protection Regulation. The GDPR privacy rules come into effect on Friday.

Read: 5 things to know about the GDPR rules taking effect Fridaywhich could cost big, bad tech billions

Sara Sjolin

Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.

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Quote References SXXP +1.10 +0.28% UKX +11.49 +0.15% GBPUSD -0.0044 -0.3289% DAX +105.26 +0.82% PX1 +19.99 +0.36% I945 -208.59 -0.92% IBEX -233.50 -2.34% EURUSD -0.0047 -0.4010% TMBMKES-10Y +0.09 +6.33% TMBMKIT-10Y +0.08 +3.30% CEY -26.70 -16.76% BAMI -0.14 -5.25% ISP -0.08 -2.97% RMG -13.20 -2.42% Show all references
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