The pan-European STOXX 600 index hit an all-time high of 556.81 points as a gauge of defence and aerospace stocks climbed about 1% after rallying nearly 4.6% yesterday on signs of European moves to relax military spending limits.
Wall Street’s S&P 500 benchmark stock index was set for a lacklustre session when US markets re-open from a holiday break later in the day, futures trading implied, after a Federal Reserve official advocated delaying interest rate cuts.
Key measures of US inflation are running at a half percentage point or more above the Fed’s goal, while anxiety about Chinese artificial intelligence (AI) competition hangs over the big tech stocks that dominate US indices.
European stocks have just had their biggest weekly investment inflow since January 2023, Bank of America said, in part because Europe’s indices have heavy weightings of industrial stocks that would benefit from continuing US economic growth.
“The idea is very simple: overvalued US tech (and) attractive value in Europe,” Lombard Odier Investment Managers multi-asset portfolio manager Florian Ielpo said.
“That old (economy) world now looks very attractive,” Ielpo said.
Euro zone governments’ borrowing costs rose, however, with Germany’s benchmark 10-year bond yield, which moves inversely to the price of the security, touching 2.51%, its highest since Jan 31.
This came after EU Commission president Ursula von der Leyen said the region would step up support for Ukraine and as the US and Russia headed into bilateral talks on a prospective peace deal that Kyiv warned could not be made on its behalf.
“The pressures on Europe to substantially increase defence spending have escalated rapidly over the last week,” Deutsche Bank economist Mark Wall said in a note to clients.
The spot gold price gained 0.5% to US$2,911.4 an ounce and US-traded gold futures for April delivery added 0.8% to US$2,923 as investment bank Goldman Sachs raised its price forecast for the yellow metal to US$3,100 by the end of the year.
China rally
In Asia, Japan’s Nikkei rose 0.5% with bank and defence-related shares taking their cues from Europe’s gains.
Chinese markets were buoyed by yesterday’s rare meeting between Xi and business leaders.
Hong Kong’s Hang Seng touched its highest since October and an index of tech shares hit a three-year high before some selling kicked in.
The tech index is up more than 25% for the year to date, turbocharged by gains in AI stocks.
“I believe that China will be the winner in the AI race, just like electric cars,” said Britney Lam, who is running a family office, LAM Group, based on China’s access to data, energy, talent and computer chips.
Australia’s central bank also began its rate cutting cycle today as expected, keeping the Australian dollar steady at US$0.6356 as policymakers presented the cut with caution on further easing.
The euro gained 0.2% to US$1.0455, with traders looking ahead to German elections this weekend that could spur fiscal stimulus to support the flailing economy.
The Japanese yen softened a touch and was last at to 151.86 per dollar, though remained at the strong end of its recent range, supported most recently by yesterday’s solid growth data which bolstered chances of a rate hike in Japan in coming months.
The pound traded at around US$1.2597, just below its highest level in two months, as investors looked towards employment and inflation data later in the week.
Oil producer group Opec+ is considering pushing back a series of monthly supply increases due to begin in April despite calls from Trump to lower prices, Bloomberg News reported yesterday, citing delegates.
Brent rose 0.77% to US$75.82 a barrel.