European Bonds Slide on Defense Spending Concerns: Markets Wrap

By Pune Media On Feb 18, 2025 23

(Bloomberg) — European bonds extended declines on concern governments will need to ratchet up debt sales to fund a bigger military as the US and Russia meet to negotiate an end to the war in Ukraine.

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The yield on German 10-year bunds rose two basis points while Europe’s Stoxx 600 index posted small moves. In the UK, the pound pared losses after data showed weekly wages grew faster-than-expected last quarter, potentially muddying the case for further monetary easing from the Bank of England.

The war in Ukraine is dominating markets in Europe as traders await details on new defense funding measures and officials fume after being excluded from the talks between top US and Russian officials in Saudi Arabia. Defense shares soared on Monday on expectations of increased spending. New measures are due to be presented in time for an upcoming March 20-21 summit, according to Polish Prime Minister Donald Tusk.

“Support for more defense spending is growing in Europe as the US takes a step back,” ING Groep NV strategists Michiel Tukker and Benjamin Schroeder wrote. “Joint EU borrowing could be a way forward and the latest on German politics will therefore be watched closely, with long-end Bund yields already nudging higher.”

Trading resumed in the US after public holidays, with Treasury yields climbing and the dollar advancing against Group-of-10 peers. Federal Reserve Governor Christopher Waller said recent economic data supported keeping interest rates on hold until more progress was seen in inflation. Stock futures pointed to gains at the Wall Street open as contracts on the S&P 500 rose 0.3%.

Chinese stocks flipped to losses as investors weighed a meeting between President Xi Jinping and business leaders on Monday that initially spurred hope for a more supportive attitude toward the sector from the nation’s leadership. Mainland China’s benchmark stock index and a gauge of Asian equities swung to a loss, while Hong Kong-listed technology stocks dropped from near a three-year high.

“The rally is getting stretched and our sentiment indicator is signaling signs of overheating,” said Marvin Chen, a strategist at Bloomberg Intelligence. “The pullback is likely driven by profit taking”

In commodities, oil steadied an advance as OPEC+ delegates said the group was considering delaying restoring output, and Ukrainian drones attacked a crude-pumping station in Russia.

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Gold held a gain after rising 0.5% on Monday. Goldman Sachs Group Inc. analysts raised their year-end gold target to $3,100 an ounce on central-bank buying and inflows into bullion-backed exchange-traded funds

Some of the key events this week:

UK jobless claims, unemployment, Tuesday
Bank of England Governor Andrew Bailey speaks, Tuesday
Canada CPI, Tuesday
New Zealand rate decision, Wednesday
UK CPI, Wednesday
US FOMC minutes, housing starts, Wednesday
China loan prime rates, Thursday
Eurozone consumer confidence, Thursday
G-20 foreign ministers meet in South Africa, Thursday – Friday
Reserve Bank of Australia Governor Michele Bullock and officials testify to parliamentary committee, Friday
Japan CPI, Friday
Eurozone HCOB manufacturing & services PMI, Friday
UK S&P Global manufacturing & services PMI, Friday
US S&P Global manufacturing & services PMI, Friday
Bank of Canada Governor Tiff Macklem speaks, Friday

Some of the main moves in markets:

Stocks

The Stoxx Europe 600 was little changed as of 8:32 a.m. London time
S&P 500 futures rose 0.3%
Nasdaq 100 futures rose 0.4%
Futures on the Dow Jones Industrial Average rose 0.2%
The MSCI Asia Pacific Index rose 0.2%
The MSCI Emerging Markets Index rose 0.6%

Currencies

The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.2% to $1.0466
The Japanese yen fell 0.3% to 151.98 per dollar
The offshore yuan fell 0.2% to 7.2810 per dollar
The British pound was little changed at $1.2617

Cryptocurrencies

Bitcoin fell 0.9% to $95,504.39
Ether fell 3.7% to $2,674.78

Bonds

The yield on 10-year Treasuries advanced four basis points to 4.51%
Germany’s 10-year yield advanced two basis points to 2.51%
Britain’s 10-year yield advanced four basis points to 4.57%

Commodities

Brent crude rose 0.2% to $75.37 a barrel
Spot gold rose 0.5% to $2,910.38 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Rob Verdonck, Winnie Hsu, Abhishek Vishnoi, Shery Ahn and Haidi Lun.