Germany’s defense spending boosts European markets, bonds fall
European stocks saw a boost while bonds tumbled following Germany's announcement to release hundreds of billions of euros for defense and infrastructure.
The euro gained, bund yields surged 18 basis points, and defense stocks including Rheinmetall AG and Saab AB rallied, helping lift the Stoxx 600 gauge more than 1%, News.Az reports, citing Bloomberg.
Stock markets were also buoyed by US Commerce Secretary Howard Lutnick’s hints at a compromise on tariffs, with US equity futures pointing to gains on Wall Street. Ten-year Treasuries were steady, while the dollar fell.
Markets are recalibrating around Germany’s decision to amend its constitution to exempt defense and security outlays from limits on fiscal spending. The move upends the country’s ironclad controls on borrowing in response to signals from the US that it’s dialing down security support for Europe.
In comments Tuesday, 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 as soon as Wednesday. Tariffs would likely land “somewhere in the middle,” with Trump “moving with the Canadians and Mexicans, but not all the way,” Lutnick said.
“The market seems to be pricing in the idea that the Trump administration is seeking a deal,” said Tomo Kinoshita, global market strategist at Invesco Asset Management.
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Frantic moves lashed markets all day Tuesday, as sentiment shifted quickly amid the slew of news. US stocks first plunged, then recovered, before falling anew at the session’s end. While the S&P 500 closed down 1.2%, equities gained in after hours trading after Lutnick’s comments.
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. He also called for an end to a $52 billion semiconductor subsidy program and repeated the 25% tariffs for aluminum, copper and steel.
Read: Trump Warns of Tariff ‘Disturbance’ as He Touts Trade Plans
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.
“There’s nothing to nitpick, just a robust growth target, and a clear intention to support the economy,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “They’re saying all the right things on employment, housing market, stock market.”
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.
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