Euro Climbs as Traders Focus on Ukraine, Tariffs: Markets Wrap
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(Bloomberg) — The euro gained in early trading with Eastern European currencies as the region’s leaders scrambled to offer Ukraine their support amid concerns of a US pullback.
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The common currency rose 0.3% against the dollar, outperforming major peers and paring some of last week’s loss. The Polish zloty and Romanian leu also gained. Asian stocks opened higher, unswayed by Trump preparing to slap long-promised tariffs on Canada, Mexico and China.
“The US turnaround is certainly a historic opportunity for Europe to tackle the subject of an autonomous European defense with potentially very positive economic ramifications since we know that many innovations with military application can have significant civilian benefits – the internet for example,” said Christopher Dembik, senior investment manager at Pictet Asset Management. “But beware of excessive optimism.”
Bitcoin largely held onto its Sunday rally after President Donald Trump talked up his plan for a strategic crypto reserve.
Markets are starting the week with another geopolitical one-two punch as European leaders pledge to increase defense spending and assemble what Britain called a “coalition of the willing” to secure Ukraine. That follows an Oval Office clash between Trump and Ukrainian President Volodymyr Zelenskiy over the prospects of a ceasefire with Russia without American security guarantees.
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The prospect of a surge in defense spending by European countries has led to a sharp rally in the shares of companies involved in the sector, such as Germany’s Rheinmetall AG, the UK’s BAE Systems Plc and Rolls-Royce Plc as well as Italy’s Leonardo SpA. Still, the ramp up in government expenditure involved may weigh on the bloc’s debt market.
“Will markets see the negatives? Unlikely as the negatives are beyond their horizon and too complex to assess,” for some investors, said Pierre-Yves Gauthier, president of AlphaValue. “For markets it is likely to be business as usual with now the conviction that the good run of European defense stocks is here to stay.”
The S&P 500 rose 1.6% Friday while Treasuries extended February’s rally, with two-year yields dropping below 4% after data showed US inflation isn’t heating up. The January core personal consumption expenditures price index, which excludes food and energy items, rose 0.3% from December. From a year ago, it increased 2.6%, matching the smallest annual increase since early 2021.
Australian and Japanese shares rose in early trading while US equity index futures were steady. Hong Kong stocks may decline as investors await news of any last minute negotiations to avoid a further increase in US trade tariffs on Chinese goods that are due to come into effect this week along with levies on Mexico and Canada.
In Asia this week, traders’ hopes are running high that a ramp-up in fiscal spending will be announced at China’s National People’s Congress to bolster domestic demand, offsetting the risk of US tariffs and sustain this year’s blistering rally. The Chinese yuan has strengthened about 0.6% this year while a gauge of the nation’s equities has jumped more than 12%, almost five times the gain of an index of global stocks, according to data compiled by Bloomberg.
“We are reasonably confident the AI-driven optimism and momentum in Hang Seng is here to stay in the near-term, but a period of consolidation is warranted following the record year-to-date gains,” said Wee Khoon Chong, a senior strategist at BNY.
Elsewhere, growth data in Australia as well as inflation readings in Latin America are due this week. The European Central Bank will give a policy decision after inflation readings in France and Italy last week supported the case for further cuts. Trump will also address a joint session of Congress just as two polls suggest he’s losing support from Americans concerned about the economy and inflation.
In commodities, oil rose at the start of the week as the market prepared for Trump’s tariffs. Gold gained.
Key events this week:
China Caixin manufacturing PMI, Monday
Eurozone CPI, HCOB manufacturing PMI, Monday
UK S&P Global manufacturing PMI, Monday
Japan unemployment, Tuesday
Eurozone unemployment, Tuesday
US President Donald Trump’s speech to a joint session of Congress, Tuesday
Australia GDP, Wednesday
China Caixin services PMI, Wednesday
China’s National People’s Congress, Wednesday
Eurozone HCOB services PMI, PPI, Wednesday
BOE Governor Andrew Bailey and colleagues speak, Wednesday
