Defense and Bank Stocks Drive Market Surge

European stock markets soared to record highs on Monday, led by defense and banking stocks, as hopes for Ukraine peace talks gained traction. The rally follows calls from French President Emmanuel Macron for an emergency summit, amid increasing U.S. pressure for higher military spending in Europe.

Defense Stocks Experience a "Supercycle"

The STOXX 600 index (.STOXX) rose 0.4%, while defense and aerospace stocks (.SXPARO) jumped over 3% to all-time highs. Since Russia’s invasion of Ukraine three years ago, these stocks have more than doubled in value, driven by increased military budgets.

Experts predict a long-term boom in the defense sector, with rising government spending fueling what analysts call a "supercycle."

According to Bruno Schneller, Managing Director at Erlen Capital Management:
"A resolution to the conflict in Ukraine could boost European economic growth by improving consumer confidence, lowering energy prices, and easing financial conditions."

Banking Stocks Surge as Bond Yields Rise

Alongside defense stocks, European banking stocks (.SX7P) climbed 1.5%, reaching 17-year highs, as bond yields continued to rise.

Macron Leads European Effort for Ukraine Peace Summit

French President Emmanuel Macron is hosting an emergency summit on Ukraine on Monday, following reports that the U.S. has sidelined Europe from upcoming Saudi-led peace talks.

Tariff Tensions and EU Trade Policy Shifts

While the immediate threat of U.S. tariffs on Europe has been postponed until April, investors remain cautious about potential future trade barriers. Concerns are growing over possible U.S. levies based on value-added taxes (VAT) in other countries.

Schneller added:
"Trade policy remains unpredictable, and escalating tariffs could impact inflation and global growth. While current measures haven’t dramatically altered the economic outlook, further trade tensions could introduce new uncertainties."

In a related development, the European Commission is considering import restrictions on certain food products to protect EU farmers. This move echoes former U.S. President Donald Trump’s trade policies.

U.S. Markets Closed for Presidents’ Day, Limiting Global Trading Activity

With U.S. stock markets closed for Presidents’ Day, trading volumes were lower than usual. However, S&P 500 futures and Nasdaq futures still managed to rise 0.2%.

• Last week, the S&P 500 climbed 1.5%, while the Nasdaq jumped 2.6%.
• Investors are looking ahead to key economic reports on global business activity and the German elections this weekend.

Goldman Sachs Predicts AI-Driven Growth for Chinese Stocks

Goldman Sachs has raised its outlook on Chinese markets, citing the widespread adoption of artificial intelligence (AI) as a key driver of future growth.

Their analysis suggests that AI could:

• Boost earnings per share by 2.5% per year over the next decade.
• Increase Chinese equity valuations by 15%-20%.
• Attract $200 billion in fund inflows.

Despite this optimism, Hong Kong stocks pulled back from recent highs on Monday, while Chinese stocks ended slightly higher as investors took profits from the recent tech-driven rally.

Asia-Pacific Markets: Japan Surprises with Strong Growth

• Japan’s Nikkei (.N225) remained steady after the country reported an unexpected 2.8% annualized GDP growth in Q4. However, gains were limited due to a strengthening yen (now at 151.65 per dollar).
• South Korea’s KOSPI (.KS11) added 0.6%.
• Taiwan’s TAIEX (.TWII) climbed 1.5%.

Forex and Commodity Markets: Oil and Gold in Focus

• The euro held steady at $1.05.
• The British pound hovered at $1.2590, close to a two-month high, ahead of key UK employment and inflation reports.
• The U.S. dollar slipped 0.5% to 151.63 yen.

Gold Pulls Back from Record Highs

• Gold prices dipped from record highs of $2,898 per ounce, following seven consecutive weeks of gains.

OPEC+ Weighs Delaying Oil Production Increases

• Brent crude rose 27 cents to $75.01 per barrel.
• U.S. crude gained 29 cents to $71.03 per barrel.

According to Bloomberg News, OPEC+ is considering delaying its planned production increases, despite pressure from U.S. President Joe Biden to lower oil prices.

Key Takeaways: What Investors Need to Know

• European stock markets hit record highs, driven by defense and bank stocks.
• Macron’s emergency Ukraine summit aims to push for peace talks.
• Goldman Sachs sees AI as a major driver of Chinese stock market growth.
• Japan surprises with 2.8% GDP growth, but a rising yen caps stock gains.
• Oil prices rise as OPEC+ considers supply adjustments, while gold retreats from highs.

Source: reuters.com, ChatGPT