European markets reached record highs on Monday, buoyed by a significant surge in defence shares. These stocks rose on the back of expectations for increased spending driven by the ongoing security needs following the Ukraine conflict. The pan-European STOXX 600 index saw a 0.5% increase, with defence and aerospace stocks hitting lifetime peaks, reflecting strong investor confidence in the sector’s future earnings. This optimism extended to broader markets, analysts believe, potentially bringing positive economic growth to Europe, including lower energy prices and improved consumer confidence.
Latest Market and Economic Update
Most Asian equities advanced on Tuesday, with Chinese technology shares rallying ahead of key earnings reports. Hong Kong’s Hang Seng surged 2% due to strong AI-driven gains. On the other hand, Australian stocks fell following the Reserve Bank’s rate cut, as investors took profits amid concerns over slower economic growth, weak demand for exports, and sluggish consumer spending.
European Market Outlook
European markets are expected to open higher, with defence stocks continuing their strong performance, driven by expectations of increased spending in response to the ongoing Ukraine conflict. Meanwhile, US futures have edged up slightly, though investors remain cautious about trade tensions and the outlook for prolonged high interest rates. Much attention is on upcoming data and geopolitical developments that could influence market movements.
US Dollar Movement
The US dollar strengthened on Tuesday, rising above 106.8. Federal Reserve officials indicated caution regarding interest rate cuts, keeping the focus on controlling inflation. Against the euro, the dollar held steady, with the single currency trading at 1.0457, reflecting market uncertainty ahead of upcoming US economic data and the release of FOMC minutes.
Oil Prices Dip Amid Supply Concerns
Oil prices saw a slight dip in Asian trading on Tuesday morning, driven by supply concerns. A Ukrainian drone attack on a Russian crude-pumping station and reports that OPEC+ may delay plans to restore output contributed to this decline. The market remained cautious due to fears of oversupply, potential US tariffs, and the uncertain outlook surrounding a possible peace agreement between Russia and Ukraine.
Equities on the Move
The following companies experienced significant movements in their share prices due to earnings reports, analyst ratings, or other news:
- BHP: The company reported a 23% drop in first-half profit to $5.08 billion, its lowest in six years, citing weaker iron ore prices and disruptions from cyclones. However, BHP pointed to signs of economic recovery in China and a rebound in steel and copper demand due to global monetary easing. Despite refraining from acquisitions, BHP remains cautious about potential trade tensions, while its copper division performed well amid strong demand and price support.
- Jefferies: The brokerage raised its price targets for Alibaba, Tencent, and Baidu, driven by the growing impact of AI advancements and cloud expansion. Jefferies highlighted Alibaba Cloud’s efficiency in AI, Tencent’s integration of DeepSeek-R1, and Baidu’s expansion of its ERNIE model. It maintained a “buy” rating on all three, noting that Chinese internet stocks remain undervalued compared to their global peers, thus increasing the valuation multiples for Tencent and Alibaba Cloud businesses.
- Stifel: Raised its price target for Rheinmetall to €1,037, citing an expected surge in NATO defence spending and the company’s dominant position in the land systems sector. With potential increases in European military budgets and a rising need for ammunition replenishment, Stifel remains bullish on Rheinmetall, projecting significant growth despite some potential risks.
- Wolfe Research: Downgraded Robinhood Markets to “Peer Perform” from “Outperform” due to concerns over valuation and rising competitive risks, particularly from financial giants like Fidelity and Schwab. Analysts noted that while Robinhood has a path to $2+ EPS by 2026, the stock’s current valuation at 30x that estimate suggests limited upside potential.
Upcoming Data and Events
Today’s economic calendar features key reports from the UK, Germany, and the US, including UK job data, Germany’s ZEW Survey, and US reports on Empire Manufacturing and the NAHB Housing Market Index. Earnings reports are also expected from notable companies, including Arista Networks, Occidental Petroleum, Baidu, and Capgemini.
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