LONDON/SYDNEY : European shares and the euro rallied on Monday, after European leaders agreed to draw up a Ukraine peace plan, while bitcoin surged after U.S. President Donald Trump unveiled plans for a new U.S. strategic cryptocurrency reserve.
At a summit over the weekend, European leaders agreed to draft the peace plan to take to the United States, following President Volodymyr Zelenskiy’s clash with Trump in the Oval Office.
Their acknowledgement of the need to spend more on defence sent shares in European arms makers soaring on Monday, which supported the broader equity markets, where sentiment remains fragile.
There was renewed uncertainty over whether or not imminent U.S. tariffs would go ahead, while concern about the health of the U.S. economy has also flared up after a string of soft data that had seen the closely watched Atlanta Fed GDPNow tracker swing to an annualised -1.5 per cent, from +2.3 per cent, sparking talk of a possible recession.
“We’re definitely looking at a cooler first quarter and maybe a significantly cooler first half of the year. And that’s down to two Trump-related factors,” Daiwa Capital economist Chris Scicluna said.
“Number one: uncertainty around tariffs and the extent to which uncertainty around tariffs dampens business investments and spending decisions. It’s also uncertainty around tariffs that raises inflation expectations,” he said.
Europe’s STOXX 600 index rose 0.2 per cent on the day, as shares in the likes of Rheinmetall, Leonardo and BAE Systems surged 11 per cent to 15 per cent.
The euro rose 0.4 per cent to $1.0416, having fallen as much as 0.4 per cent at one point late on Friday, after talks between Trump and Zelenskiy collapsed.
S&P 500 futures and Nasdaq futures were both up 0.2 per cent.
CRYPTO SURGE
Bitcoin stole the limelight on Monday, rising by as much as 20 per cent from last week’s lows below $80,000 after Trump announced on social media five digital assets he expected to include in a new reserve, including bitcoin, ether, XRP, solana and cardano.
Trump provided no detail on how the fund would work, but it was enough to revitalise the crypto bulls, who took a serious knock last week.
“Trump just gave the pump that crypto traders have been holding out for,” said Matt Simpson, senior market analyst at City Index.
Ether, the second-largest cryptocurrency, pulled back to $2,448 after climbing 13 per cent a day earlier.
CLOUDY OUTLOOK
The European Central Bank meets on Thursday and is widely expected to cut interest rates, although there is less conviction over what the central bank might signal about the outlook for monetary policy, given the geopolitical backdrop.
Expectations around the Federal Reserve are even more uncertain now. Futures are pricing in 60 basis points’ worth of cuts this year, from barely pricing in 25 bps just a couple of weeks ago.
Concern about the economic outlook deepened on Sunday when U.S. Commerce Secretary Howard Lutnick said tariffs on Canada and Mexico would go into effect on Tuesday, but that Trump would determine whether to stick with the planned 25 per cent level.
An extra 10 per cent levy on Chinese imports is also due to come into effect this week, just as the country’s National People’s Congress opens its third annual session on Wednesday where stimulus measures and possible reprisals against the United States could be announced.
“As with other Trump tariff announcements so far, it’s hard to know if this is a bluff or a genuine turn in policy,” said JPMorgan economist Michael Feroli.
By Monday, the Canadian dollar and the Mexican peso were trading a touch stronger on the day, both up 0.25 per cent against the U.S. dollar.
The next major macro event is the January U.S. payrolls report due on Friday. Fed Chair Jerome Powell is due to speak just a few hours after the jobs report, and at least seven other officials will appear this week.
In commodities, gold was last up 0.4 per cent at $2,869 an ounce, while oil was down 0.4 per cent at $72.49 a barrel.
