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What’s happening: European equity markets climbed on Monday, powered mainly by defence stocks.
What happened: European stocks closed trading on Monday at a record high, as investors accessed prospects of a fillip in military spending.
Trading was light with US markets remaining closed for President’s Day, marking George Washington’s birthday.
Why it matters: European stocks bounced back on Monday after declining slightly on Friday, with last week being interspersed with new record closings.
The Aerospace and Defence index climbed on news of European leaders coming together at an emergency summit in Paris to discuss an increase in military expenditure. The summit was organised after US President Donald Trump announced plans for his administration to hold talks with Russia to put an end to the war with Ukraine.
The summit was attended by UK Prime Minister Keir Starmer, Germany’s Chancellor Olaf Scholz, France’s President Emmanuel Macron, Sweden’s Prime Minister Ulf Kristersson, European Commission President Ursula von der Leyen and NATO Secretary General Mark Rutte. Most leaders pledged their commitment to raise military spending to send troops to ensure a peace deal between Ukraine and Russia.
On the economic data front, the Eurozone reported a trade surplus of €15.5 billion for December, versus €16 billion in the previous month. However, the figure came in higher than expectations of €14.4 billion, lifting market sentiment.
The pan-European STOXX 600 index rose 0.54% to close at 555.42 points on Monday, with the Aerospace and Defence index climbing 4.6%, its biggest single-day jump since the Russia-Ukraine conflict began in February 2022.
UK’s FTSE 100 added 0.41% to settle at 8,768.01. Germany’s DAX and France’s CAC 40 climbed 1.26% to 22,798.09 and 0.13% to 8,189.13, respectively.
What to watch: Investors await the ZEW Indicator of Economic Sentiment for the Eurozone (14:00 UAE Time) today. Economic sentiment in the bloc had risen by 1 point to 18 in January, beating expectations of a decline to 16.9. The indicator is expected to improve significantly to 24.3 in February.
Context: The JPY/USD rose this morning, amid growing speculations of further interest rate hikes by the Bank of Japan.
Details: Preliminary figures showed that the Japanese economy grew by 2.8% on an annualised basis in the fourth quarter of 2024, accelerating from 1.7% growth in the previous quarter. Driven by a strong recovery in capital expenditure in Japan, the latest GDP figure marked the third consecutive quarter of annualised expansion.
Data also showed a 1.6% decline in industrial production in Japan in December. The extent of the decline was much lower than the 2.7% contraction reported in the previous month.
The data releases fuelled speculations of interest rate hikes by the Bank of Japan, which supported the yen.
The JPY/USD forex pair rose by 0.40% to 152.12 this morning. Japan’s Nikkei 225 gained 0.06% to close at 39,174.25 on Monday.
What to watch: Investors will monitor the outlook of the US dollar, with President Donald Trump gearing up to unveil a detailed reciprocal tariff plan on Thursday.
Other Markets: Asian trading indices closed mostly higher on Monday, with the Asia Dow, China’s Shanghai, and India’s Sensex up by 0.69%, 0.27%, and 0.08%, respectively, and Hong Kong’s Hang Seng down by 0.02%.
Russia launched 147 attack drones against Ukraine last night, destroying several storage facilities and residential buildings. The news sent the safe-haven US dollar higher in forex trading this morning.
Canada housing starts rose by 3% to 239,739 units in January, from 232,500. However, the figure missing market expectations of 251,000 units exerted pressure on the CAD/USD forex pair.
The Reserve Bank of Australia cut its cash rate by 25bps to 4.1% at its latest meeting, in-line with market expectations. Despite this being the first rate cut since November 2020, the AUD/USD rose in forex trading this morning.
Sri Lanka’s Manufacturing PMI climbed to 59.0 in January, from 57.2 in December. This being the sector’s fastest expansion since July 2024 lent support to the LKR/USD forex pair.
Colombia’s GDP grew by 2.3% year-on-year in the fourth quarter of 2024, accelerating from the 2.0% growth recorded in the previous quarter. However, the figure coming in-line with market expectations sent the COP/USD lower in forex trading this morning.
South Africa’s Unemployment Rate (1330 UAE Time), UK’s labour productivity (1400 UAE Time), Germany’s ZEW Economic Sentiment Index (1400 UAE Time), Canada’s inflation rate (1730 UAE Time), US NY Empire State Manufacturing Index (1730 UAE Time) and NAHB Housing Market Index (1900 UAE Time) and Argentina’s balance of trade (2300 UAE Time).
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