(Bloomberg) — The euro gained in early trading with East 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. Bitcoin extended its rally after President Donald Trump talked up his plan for a strategic crypto reserve and Asian stocks are set for a mixed start.
“Plans for the European countries to take more responsibility for funding the war in Ukraine and upping defence spending” should be euro positive, said Dane Cekov, a senior macro and FX strategist at Sparebank 1 Markets AS. “Still, we expect the US dollar to continue on a strong note as the introduction of tariffs continues to include more countries and sectors in the months to come.”
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 a fiery Oval Office clash between Trump and Ukrainian President Volodymyr Zelenskiy over the prospects of a ceasefire with Russia without American security guarantees.
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 and Hensoldt AG, UK’s BAE Systems Plc and Rolls-Royce Plc as well as Italy’s Leonardo SpA. A Goldman Sachs basket of European defense stocks has climbed more than 40% since Trump won the US election in November, and further gains are seen as European countries look set to boost military spending.
“This coalition of willing is sadly hinging only on the UK’s impressive commitment to Ukraine and on France lucky enough not to depend on the US to deploy its defense assets,” said Pierre-Yves Gauthier, president of AlphaValue. “Will markets see the negatives? Unlikely as the negatives are beyond their horizon. 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 shares rose in early trading while US equity index futures climbed. Japanese futures contracts indicate the cash market will rise at the open. Chinese and Hong Kong stocks are set to decline as investors await news of any last minute negotiations to avoid a further an increase in US trade tariffs on Chinese goods that are due to come into effect this week 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 a gauge of global stocks, according to data compiled by Bloomberg.
“Counter to the negative this week is the anticipated positive messaging from China CPPCC and NPC meeting,” said Wee Khoon Chong, a senior strategist at BNY. “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.”
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 in early trading after settling below $70 US a barrel on Friday as Trump’s tariff threats cloud the outlook for energy demand. 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
