European stocks jumped, and bonds in the region tumbled on Germany’s plans to unleash hundreds of billions of euros for defense and infrastructure.
The euro strengthened 0.7%, bund yields surged more than 20 basis points, and industrial stocks, including Heidelberg Materials AG and Bilfinger SE, soared. That propelled the European Stoxx 600 benchmark 1.6% higher, while futures on the S&P 500 rallied almost 1% amid speculation that US trade tariffs may be dialed down.
Germany’s decision to exempt defense from limits on fiscal spending in response to dwindling US support is cascading through markets. It signals a turnaround in the nation’s ironclad borrowing rules, spurring optimism for an economic boost to Europe.
“This could be a real game changer for Germany and for Europe,” said Daniel Murray, Zurich-based chief executive officer of EFG Asset Management. “The positive effects should be more than just a flash in the pan — there should be some genuine long-term benefits spread over a number of years.”
The logic that more spending will fan inflation, requiring tighter policy from the European Central Bank, lifted the euro toward its best three-day run since November 2022 and sent 10-year bond yields at least 10 basis points higher in the UK, France, Italy and Spain.
“Huge quantities of debt in the coming years is going to be quite disruptive for European bond markets, particularly the long end of the curve,” said Peter Kinsella, global head of FX strategy at Union Bancaire Privee Ubp SA in London. “We’ve not seen this type of issuance pretty much since the early 1990s when Germany was paying for reunification.”
Tariff Bets
Stock markets also got a lift from comments Tuesday by US Commerce Secretary Howard Lutnick, who hinted at a compromise on tariffs.
Lutnick told Fox Business that the US could announce a pathway for tariff relief on Mexican and Canadian goods covered by North America’s free trade agreement. Tariffs would likely land “somewhere in the middle,” with US President Donald Trump “moving with the Canadians and Mexicans, but not all the way,” Lutnick said.
In an address to Congress, Trump acknowledged that there may be an “adjustment period” to tariffs as he defended his policies to remake the US economy.
Ten-year Treasury yields traded steady, while the dollar sank 0.5%.
China Growth Goal
Hong Kong shares outperformed after the National People’s Congress in Beijing set an economic growth target of about 5% for 2025, the third straight year it has maintained that goal. Given the broadening global uncertainty on tariffs and geopolitics, economists expect Chinese officials to add stimulus.
On the corporate front, Blackrock Inc., the world’s biggest asset manager, led a consortium that will buy a controlling stake in Panama ports and a larger unit that has operations across 23 countries. It’s one of the biggest acquisitions of the year that marks a win for Trump, who had raised concerns over control of key ports near the Panama Canal.
In commodities, oil extended its decline, and gold steadied near a record high. Bitcoin swung between gains and losses.
Source: https://finance.yahoo.com/news/asia-set-bumpy-open-hints-225703318.html
