Defense Spending Prospects Weigh on European Bonds: Markets Wrap

(Bloomberg) — European stocks held close to record highs and bonds extended declines on expectations governments will need to ratchet up military spending.

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German 10-year bund yields — the benchmark borrowing rate for the euro area — rose to the highest in more than two weeks, extending the previous day’s six-basis point increase. British gilt yields climbed even more, lifted also by data showing a resilient jobs market and robust wage growth.

Europe’s Stoxx 600 index was steady after Monday’s rally, though defense stocks advanced further, with Rheinmetall AG and Dassault Aviation SA reaching new record highs. US stock futures pointed to gains at the Wall Street open, with S&P 500 contracts up 0.2%.

The war in Ukraine continues to dominate markets in Europe as traders await details on new defense funding measures and officials in the region fume after being excluded from US-Russia talks in Saudi Arabia. New measures are due to be presented in time for an upcoming March 20-21 summit, according to Polish Prime Minister Donald Tusk.

“Underneath it all is defense spending, which will be good for US defense contractors, but also European industrials and defense contractors,” said Tim Graf, head of EMEA macro strategy at State Street Bank and Trust Co. “And just the notion that fiscal deficits, particularly in Germany, have room to expand.”

Elsewhere, attention is likely to refocus on the Federal Reserve’s interest-rate path, with Federal Reserve Governor Christopher Waller saying recent economic data supports keeping rates on hold until more progress is seen on inflation.

Treasuries, reopening after a public holiday, saw yields tick higher, while the dollar advanced against Group-of-10 peers. The Australian dollar steadied after an earlier fall, as the central bank lowered rates but warned the move did not imply further cuts along the lines markets are pricing.

Among other individual stock movers in Europe, InterContinental Hotels Group PLC dropped after results. In US premarket trading, Intel Corp. shares rose after the Wall Street Journal reported that Taiwan Semiconductor Manufacturing Co. and Broadcom Inc. are mulling deals that would break up the US chip giant. Delta Air Lines Inc. fell after one of its jets flipped out of control after landing in Toronto.

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Earlier in the day, Chinese stocks in Hong Kong gained after a meeting between President Xi Jinping and prominent entrepreneurs signaled Beijing’s endorsement of the private sector. The Hang Seng China Enterprises Index rose is now up nearly 24% off January lows.

In commodities, gold extended gains to trade around $2,910 an ounce after Goldman Sachs Group Inc. analysts raised their year-end gold target to $3,100. Prices for the precious metal are up almost 11% so far this year.

Some of the key events this week:

• 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 10:21 a.m. London time

• S&P 500 futures rose 0.2%

• Nasdaq 100 futures rose 0.3%

• Futures on the Dow Jones Industrial Average were little changed

• The MSCI Asia Pacific Index rose 0.3%

• The MSCI Emerging Markets Index rose 0.7%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%

• The euro fell 0.2% to $1.0463

• The Japanese yen fell 0.2% to 151.74 per dollar

• The offshore yuan fell 0.2% to 7.2790 per dollar

• The British pound fell 0.2% to $1.2598

Cryptocurrencies

• Bitcoin fell 0.8% to $95,681.95

• Ether fell 2.9% to $2,697.02

Bonds

• The yield on 10-year Treasuries advanced three basis points to 4.51%

• Germany’s 10-year yield advanced two basis points to 2.51%

• Britain’s 10-year yield advanced two basis points to 4.55%

Commodities

• Brent crude rose 0.6% to $75.69 a barrel

• Spot gold rose 0.5% to $2,910.71 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Aya Wagatsuma.

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